Key indices of the Indian stock market saw significant losses on Tuesday, May 20, amid mixed global cues.
The Sensex opened at 82,116.17 against its previous close of 82,059.42 and fell as much as 906 points, or 1.10 per cent, during the session to hit an intraday low of 81,153.70. On the other hand, the Nifty 50 started the day at 24,996.20 against its previous close of 24,945.45 and dropped 1.10 per cent to an intraday low of 24,669.70.
Finally, the Sensex closed 873 points, or 1.06 per cent, lower at 81,186.44, while the Nifty 50 settled with a loss of 262 points, or 1.05 per cent, at 24,683.90.
The selloff was broad-based as the BSE Midcap and Smallcap indices closed with losses of 1.65 per cent and 0.96 per cent, respectively.
The across-the-board selloff in the market eroded investors’ wealth by over ₹6 lakh crore in a single session as the overall market capitalisation of BSE-listed firms dropped to nearly ₹438 lakh crore from nearly ₹444 lakh crore in the previous session.
Why did the Indian stock market fall today?
Here are the five key reasons behind the downtrend in the Indian stock market:
1. Indian stock market seeks clarity on the trade negotiations
Optimism about a potential trade deal between the US and India is fading. Investors are now seeking clarity on the negotiations, especially after China and the UK have successfully secured agreements with Washington.
Experts say the domestic market may remain rangebound until there is significant clarity about the trade deal.
“The US is currently undertaking multiple trade/tariff-level negotiations with various countries, including India. Till we get clarity on the results of those negotiations, markets are likely to remain rangebound,” Mohit Khanna, CFP, Fund Manager, Purnartha One Strategy, told Mint.
According to a Bloomberg report, “India is discussing a US trade deal structured in three tranches and expects to reach an interim agreement before July.”
2. Elevated valuations
Experts highlight the elevated valuations of the domestic market, which will cap the rise of the market.
The current Nifty PE at 22.3 is at a six-month high and is slightly above its two-year average PE of 22.2.
“In the near term, the market is likely to move to a consolidation phase. The high valuations will put a cap on the upside with institutional selling emerging on the upside,” said VK Vijayakumar, Chief Investment Strategist, Geojit Investments.
“Given the elevated market valuations across the bulk of mid and small-cap space and even among large caps, I think return expectations would be muted over the medium term,” said Krishnan V R, Chief of Quantitative Research at Marcellus.
3. Credit downgrade of the US
The downgrade of the US credit rating by Moody’s has also weighed on market sentiment.
Ratings agency Moody’s on Friday downgraded the US’ sovereign credit rating by one notch to ‘Aa1’, citing the country’s growing debt amid persistent political bickering.
“The credit rating downgrade of the US has introduced an element of disquiet in financial markets. Even though this is not a near-term threat, it will have a sentimental impact of uncertainty and potential fallouts arising from presently unexpected developments,” said Vijayakumar.
4. Lack of fresh positive triggers
The Indian stock market has been in a range over the last few sessions amid a lack of fresh triggers.
With peak anxiety about tariffs and geopolitical tensions behind, the market awaits Q4 GDP prints and earnings growth to sustain gains.
The upcoming policy meetings of the RBI and the US Federal Reserve in June will also influence the domestic market.
5. FPIs appear cautious
Amid rising concerns over stretched valuations, mixed earnings and a delay in the trade deal, foreign portfolio investors (FPIs) sold off Indian equities worth ₹525.95 crore in the cash segment on May 19.
Meanwhile, experts point out that with the outlook for the Chinese market improving—following a trade deal with the US and a rate cut by the People’s Bank of China—foreign capital may be diverted to China for a while. While this may be a tactical move and a short-term phenomenon, it could put some pressure on the domestic market.
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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions, as market conditions can change rapidly, and circumstances may vary.
