Indian markets extended their losing streak on Friday, with the Nifty 50 dropping 1,200 points over the past five sessions. The selloff has been driven by hawkish signals from the US Federal Reserve, heavy selling by Foreign Institutional Investors (FIIs), and concerns over high market valuations. Investors have also been worried about sluggish earnings growth, limiting hopes of a quick recovery.
On December 20, the Nifty fell over 400 points, closing at 23,587, a drop of 1.5%. This marks a decline of nearly 5% from its recent high on December 13. Similarly, the Sensex plunged 1,350 points intraday, ending at 77,875.
Key Factors Behind the Market Crash
- US Fed’s Cautious Approach
While the US Federal Reserve cut interest rates by 25 basis points, it indicated only two rate cuts for 2025, disappointing global markets. Fed Chair Jerome Powell also emphasized the risk of persistent inflation, raising inflation forecasts for 2025. - Aggressive FII Selling
FIIs have sold Rs 12,230 crore worth of Indian equities over the last four sessions, turning into net sellers for December so far. - High Valuations and Weak Earnings Growth
The Nifty is trading at high valuations, with its forward price-to-earnings ratio near 20x, compared to its 10-year average of 18.97x. Sluggish earnings growth has further made investors cautious. - Technical Support Levels Breached
On Thursday, the Nifty broke below its 200-day moving average (23,870), increasing selling pressure. On Friday, the index also fell below its 23,850 support level, signaling potential further declines toward the 23,500 range.
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