Sensex Tanks 800 Points, Nifty Nears 22,500! 5 Reasons Behind the Crash

On February 24, 2025, the Indian stock market experienced a significant downturn, with the Sensex plummeting 857 points (1.14%) to close at 74,454.41 and the Nifty 50 dropping 243 points (1.06%) to settle at 22,553.35. This fall marked the fifth consecutive session of losses, erasing approximately ₹4 lakh crore from investors’ wealth in a single day.

Several prominent stocks, including NTPC Green Energy, Tata Motors, and Adani Green Energy, reached their 52-week lows during the session. The broader market also faced pressure, with the BSE Midcap index falling by 0.78% and the BSE Smallcap index declining by 1.31%.

Market Performance Overview

The Sensex opened at 74,893.45, a dip from its previous close of 75,311.06. During the session, it tumbled 924 points to touch 74,387.44. By the end of the day, it settled at 74,454.41, marking a decline of 857 points or 1.14%. Similarly, the Nifty 50 began at 22,609.35, down from its prior close of 22,795.90, and dropped 1.2% to hit 22,518.80 during intraday trading. It eventually closed at 22,553.35, down 243 points or 1.06%.

This downturn wasn’t limited to the major indices. The BSE Midcap index fell by 0.78%, and the BSE Smallcap index decreased by 1.31%. The collective market capitalization of BSE-listed companies shrank by approximately ₹4 lakh crore in a single session, dropping from about ₹402 lakh crore to nearly ₹398 lakh crore.

Sectoral Indices Performance

Most sectoral indices faced significant losses:

• Nifty IT: Decreased by 2.71%
• Nifty Metal: Fell by 2.17%
• Nifty Oil & Gas: Declined by 1.10%
• Nifty Bank: Dropped by 0.67%

However, not all sectors were in the red.

• Nifty FMCG: Increased by 0.36%
• Nifty Auto: Rose by 0.22%
• Nifty Pharma: Inched up by 0.02%

Key Factors Behind the Market Decline

Several elements have contributed to this market slump:

Global Trade Tensions

The ongoing trade disputes, particularly involving the U.S., have created an atmosphere of uncertainty. Policies introduced by President Donald Trump have raised concerns about potential trade wars, which could hamper global economic growth. This apprehension has led investors to be cautious, impacting markets worldwide.

Foreign Portfolio Investors (FPI) Outflows

Foreign investors have been pulling out funds from the Indian equity market. In February alone, FPIs sold Indian equities worth nearly ₹37,000 crore up to the 21st. Since October 2024, the total outflow has surpassed ₹3 lakh crore. Factors such as high market valuations, rising U.S. bond yields, and signs of an economic slowdown have prompted this exodus.

Attractive Chinese Market

The Chinese stock market has been on an upward trajectory recently. Attractive valuations in China and relatively high valuations in India have led investors to reallocate funds. This “sell India, buy China” trend is expected to persist in the near term as Chinese stocks continue to appeal to global investors.

Know More:  SEBI Registered investment advisory |  Stock investment advisory

Domestic Economic Concerns

Indicators suggest a deceleration in India’s economic growth. Moody’s Analytics projects that India’s GDP growth rate will slow to 6.4% in 2025, down from 6.6% in 2024. Factors such as new U.S. tariffs and weakening global demand are anticipated to affect the country’s export performance, adding to investor concerns.

Inflation and Interest Rate Uncertainty

In the U.S., persistent inflation coupled with moderated economic growth has created a challenging scenario. The S&P Global’s flash U.S. Composite PMI Output Index fell to 50.4 in February, the lowest since September 2023. Simultaneously, the U.S. Consumer Price Index rose by 0.5% in January, reaching 3% year-over-year. These dynamics have led to uncertainty regarding future interest rate adjustments by the Federal Reserve, influencing global investor sentiment. Source: Livemint

Stocks Hitting 52-Week Low

The market downturn has also led to several stocks reaching their 52-week lows:

• Adani Green Energy: Dropped to ₹819.1, a decline of 3.6% on Monday. The stock has decreased by almost 18% in the past month and 58% over the last year.
• Tata Motors: Fell to ₹666, a 1% drop on Monday. The stock is down 8.5% in the past month and over 28% in the last year.
• NTPC Green Energy: Plunged to ₹96.2, a 9% decrease on Monday, coinciding with the end of a three-month lock-in period for shareholders.
• Sun TV Network: Declined to ₹567.05, a 1.5% drop on Monday. The stock is down 9.5% in the past month and 8.5% compared to a year ago.

Source: Livemint

What should investors do?

While the recent downturn has raised concerns, investors should focus on staying informed and making well-researched decisions. Tracking market trends, understanding global economic shifts, and diversifying portfolios can help mitigate risks. Short-term volatility is a part of market cycles, and rather than reacting impulsively, investors should assess their long-term financial goals and risk appetite before making any changes to their investments. Monitoring fundamental indicators and sectoral movements will also provide insights into potential recovery trends.

Conclusion

The recent decline in the Indian stock market is a result of global and domestic factors. Trade tensions, foreign investor outflows, attractive alternative markets, domestic economic slowdown, and inflation concerns have collectively contributed to the current market scenario. Investors are advised to stay informed and exercise caution in their investment decisions as the situation evolves.

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