Nifty 50 and Sensex were at their all-time highs on 27 September 2024. While Nifty reached an all-time high of 26,277.35, Sensex made an all-time high of 85,978.25. However, after reaching their respective 52-week highs, both indices reversed and witnessed a more than 9% correction. But why are Nifty and Sensex falling? What’s causing the correction? Will the Indian stock market crash in 2024? This bear trend has left several questions in the minds of investors, and in this article, we will discuss their answers.
What’s Causing Nifty 50 and Sensex to Fall?
Today, on 13 November 2024, the Nifty 50 slipped down another 324.40 (-1.36%) points to close at 23,559.05, and the Sensex dropped 984.23 points (-1.25%) to close at 77,690.95. This shows that the Indian stock market is currently in a downtrend and showing no signs of stopping. We did see some positive sessions, like the one on 1 November 2024, during the Diwali Muhurat Trading session. However, Let’s understand the reasons behind this fall.
Interest Rate Hike Pressure From Japan
It all began when the Central Bank of Japan hiked interest rates for the first time since 2007. In 2024, Japan increased interest rates twice, in March and July. From the near 0% to 0.1% interest rate, Japan hiked it to the current 0.25%. This decision from the Bank of Japan came right before the US Federal Reserve’s interest rate decision.
The lower interest rate in Japan encouraged many people to borrow Yen and invest it in lucrative, high-profit assets worldwide. However, as the interest rates were hiked on 31 July 2024, people started booking their profits. This led to a short-term decline in the global economies.
The Nikkei 225 (market index of the Toyko Stock Exchange) dropped by around 12.4% on 5 August 2024 due to this news. This marked the worst day for the index, which dropped from 35,909.70 on 2 August 2024 to 31,458.42 on 5 August.
The sell-off led to a decline of around 3% in the US and the Indian stock markets, too, on the same date.
While the interest rate hike occurred at the end of July 2024 and impacted the market in the first week of August 2024, it is still a major concern for investors. This move shows that there can be possible interest rate hikes in the future, which is spooking investors to withdraw their investments from the global market.
The markets continue to be under pressure because, in October 2024, Japan’s ruling political party, the Liberal Democrats, chose Shigeru Ishiba to succeed Fumio Kishida as the country’s new Prime Minister. He backs the Bank of Japan’s move to increase interest rates and has also expressed support for other policies, like increasing corporate tax.
High FII Selling
Foreign Institutional Investors (FIIs) play a significant role in any country’s economy and stock market. Their investments worth crores of rupees in the Indian economy can give it a boost. However, in October 2024, FIIs started withdrawing money from the Indian markets and investing it in China. This came as a response to a series of economic stimulus the Chinese government announced.
One of the most recent stimulus packages announced by the Chinese government was the $1.4 trillion package over five years to tackle the local governments’ hidden debt. This signals that more economic support will continue in 2025. Although it is unclear if the stimulus will revive the country’s falling economy, it led several FIIs to shift their focus to the Chinese market.
Therefore, October 2024 was a record month for our country’s stock market, but in a negative way. FIIs sold a net of -114,445.89 crores in October 2024, which is the highest in a single month. Before this, the highest sell-off in 2024 was in May, when they sold a net of -42,214.28 crores. The same is being continued in November 2024. As of 12 November 2024, FIIs sold a net of -25,180.72, and today, on 13 November 2024, they sold a net of another -2,502.58 crores.
Source: https://web.sensibull.com/fii-dii-data/history
High FII selling is one of the biggest reasons why Nifty 50 and Sensex are falling today. However, it is thanks to the Domestic Institutional Investors (DIIs) that the market is down by close to 10% instead of 20% or more. While FIIs sold heavily in October 2024, DIIs made a net purchase of 107,254.68 crores.
Geopolitical Uncertainty
If you are following world news, you would be aware of the ongoing tension between several countries. While the Russia and Ukraine wars continued in the past years, new tensions arose between Israel and Iran. The increasing supply of crude oil has kept the market a little steady but the increasing conflicts among the Middle East nations have added to the uncertainty in the global markets.
These mounting tensions have made several small impacts on the Indian stock market. For instance, Iran launched 180 missiles on Israel at the start of October 2024. This further spooked the FIIs to start booking their profits due to the growing tensions, and it reflected in the Indian market as well.
Fears of US Recession
The fears of the US recession have intensified over the past months. In July 2024, nonfarm payrolls grew by only 114,000, way below the expected range of around 185,000. Moreover, the unemployment rate increased to 4.3%. This marked the highest unemployment rate since October 2021, increasing the fear of recession.
Recently, in October 2024, the nonfarm payroll employment remained unchanged at +12,000. Even the unemployment rate was unchanged compared to September 2024, which was 4.1%. While this is better than July 2024, it is still a concern compared to October 2023, when the unemployment rate was only 3.8%, which is still much higher.
Domestic Factors Causing Nifty and Sensex to Fall
While there are several external factors like the ones mentioned above that are causing the Nifty 50 and Sensex to fall today, there are some domestic factors affecting the market, too. Some of these factors include:
- Allegations against Securities and Exchange Board of India (SEBI) Chief: US short-seller Hindenburg Research alleged SEBI chief Madhabi Puri Buch of Real Estate Investment Trusts (REITs) and Blackstone connection, undisclosed income from banks, and employee complaints. However, government sources have now declared these claims to be false.
- Overvaluation concerns: Over the past few months (before October), the Indian stock market had an amazing bull phase. Several stocks were trading at premium valuations and making new highs. However, as the negative sentiments entered the market, investors started booking their profits to avoid loss. This led to a panic in the market, paving the way for the bears to take over.
- Lack of positive business results: Major company stocks, including Reliance Industries, BPCL, Infosys, HDFC Bank, etc., have lacked good results in the first half of 2024. This is affecting investor confidence and causing a frenzy, leading to the market downfall.
Is the Indian Stock Market in the Bear Phase?
The bear phase is usually defined as a prolonged decline in the market, where indices fall by 20% or more. The Indian stock market indices for both Nifty 50 and Sensex have fallen by close to 10% as of 13 November 2024. Although this is not necessarily a bear phase, there’s no denying that the market is in a downtrend.
Technical analysis of the charts shows that the Nifty 50 and Sensex have broken budget-day and 5 August 2024 lows. This means that the market has already entered a downtrend or bear run. If Nifty 50 goes below 23,500, the next support levels or demand zones are at:
- 23,430
- 23,340-23,350
- 23,220
Nifty 50 and Sensex Continue Falling in 2024 and 2025?
Nifty 50 and Sensex are falling today, but as soon as the economic conditions stabilize, we can expect them to bounce back. However, there is no certainty about the market’s movement towards the end of 2024 and 2025.
As always, the markets will move based on investor sentiments and global economic news. If FIIs continue to withdraw their money, the global uncertainties and tensions keep mounting high, the US economy will enter a recession, and domestic factors in India will spread negative sentiments, the Indian money and capital market will continue to fall, including the stock market.
On the other hand, if tensions are reduced and there is a positive sentiment among investors, the market will reverse from a demand zone and enter a bull run. This will help avoid a stock market crash in 2025, ending the current bear run.
Overview of the Indian Stock Market
Nifty 50 and Sensex continue to fall today. So, what should you do as an investor or trader in the Indian stock market? The answer is simple: if you are a trader, you can try to ride the negative news in the market to earn a profit. However, it is advised to trade with strict Stop Loss (SL) in this volatile market. The Indian stock market volatility indicator India Vix rose to 15.44 today. This means the market is very volatile right now, and all the trades you do should have a strict SL.
On the other hand, if you are a long-term investor, now is a good time to put your free capital to use. As the popular saying goes, “Buy the dip and sell the rip,” you can buy new stocks or average your current holdings since the prices have declined a lot. There’s nothing to fear for long-term investors as this is just a small fluctuation for someone who has been holding any stocks for several years now. In my opinion, you can also choose to wait a little longer for the market to enter a bull run again before adding stocks.
Regardless of what you choose, it is important to understand why the Nifty 50 and Sensex indices are falling. This will help you determine the right time to expect the reversal and enter into the right trades to make profits.
