Indian Stock Market Falls for Third Straight Session: What’s Driving the Decline?

The Indian stock market continued its downward trend on Friday, marking the third consecutive day of losses. The Nifty 50 index opened lower at 25,093 and fell further to an intraday low of 24,879, losing around 400 points and dropping below the crucial 25,000 mark. The BSE Sensex also experienced a sharp decline, opening at 82,171 and hitting an intraday low of 81,304, recording a loss of 867 points shortly after the market opened. Over the past three sessions, the Sensex has lost approximately 1,250 points.

Reasons Behind the Decline

Experts attribute the recent falls in the Indian stock market to several key factors:

US Federal Reserve Meeting

Uncertainty surrounding the US Federal Reserve’s upcoming interest rate decision is a major concern. The market is unsure whether the Fed will cut rates by 25 basis points (bps) or 50 bps. A smaller cut might not significantly boost global markets, while a larger cut could have a more positive impact. Investors are cautious, leading to a reduction in long positions to avoid potential losses after the Fed’s announcement.

Overbought Conditions

Before the recent sell-off, the Indian stock market had been rallying for 14 consecutive days. This extended rally led to overbought conditions, where stocks were considered expensive. The current decline is seen by some experts as a natural phase of profit-taking following the previous gains.

Rebound in US Dollar Rates

After a revision in the US inflation average, the US dollar saw a rebound. The US dollar index, which had dropped to a 7-month low, has recovered to around 101, gaining about 1% in the past three sessions. This increase in the dollar's value has influenced global markets, including India, by impacting forex and treasury markets.

US Job Data

US job openings fell to a three-and-a-half-year low in July, indicating a slowdown in the US labor market. This drop has contributed to negative sentiment in global markets, including the Indian stock market.

US Inflation Concerns

Concerns about a potential slowdown in the US labor market have revived fears about US inflation. There is speculation that the Federal Reserve may reconsider its decision to cut rates if inflation remains a concern. Even if a rate cut occurs, it might be limited to 25 bps, which could impact market expectations.

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In summary, the Indian stock market is experiencing a downturn due to a combination of global economic uncertainties and internal market conditions. Investors are closely watching the developments related to the US Federal Reserve and other economic indicators.