Sensex tanks 2,000 pts in 2 days! 5 reasons why stock market is falling 
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Sensex tanks 2,000 pts in 2 days! 5 reasons why stock market is falling From an intraday high of 71,910.14 on Wednesday to a low of 69,920.39 on Thursday morning, the BSE Sensex has fallen 1,989.75 points, suggesting the Santa rally is over. There are many reasons behind the market fall, the predominantly one is concerns over valuations after the recent surge -- the case in point is the plunge midcap and smallcap counters that led the return charts in recent months. FPI outflows, weak global cues, concerns over rising Covid case in India and fears that oil prices would rise on dollar weakness and Red Sea attacks, all contributed to halt in the recent rally. Investors were looking to take home some profits and there are plenty reasons now:
Market valuations
From October 26 to December 15, Sensex jumped about 8,350 points or 13 per cent without taking a breather. Nifty jumped from a sub-19,000 level to about 21,600 level during the same period.
"The market cap-to-GDP ratio has reached levels, which signal potential overvaluation and suggesting caution as the market may have priced itself well ahead of the curve," said Kenneth Andrade Founder, Director at Old Bridge Capital Management.
Andrade said there are areas of caution. "Excesses in the small and microcap space raise concerns, and there is an anticipation of volatility, especially in segments where valuations appear stiff. Despite these short-term challenges, the overarching trend seems to favour India, presenting a higher growth potential relative to peer countries in the region."
FPI outflows
The fall in Sensex and Nifty can partly be attributed to selling by foreign portfolio investors, who as per provisional data with NSE sold domestic stocks to the tune of Rs 1,322.08 crore on Wednesday. The selling was seen ahead of Christmas holidays. To be sure, December has emerged as the best month in terms of FPI inflows at Rs 56,617 crore. Some profit taking by FPIs, thus, is on expected lines.
Weak global cues
It was not that domestic indices are struggling alone. In overnight trade, it was US stocks that saw an abrupt mid-afternoon selloff that sent Dow Jones Industrial Average tumbling 475.92 points, or 1.27 per cent, to 37,082. The S&P500 index lost 70.02 points, or 1.47 per cent, to 4,698.35 overnight while the Nasdaq Composite fell 225.28 points, or 1.5 per cent, to 14,777.94. Asian markets too were struggling with Japan's Nikkei leading the losers.
Oil concerns
There are concerns oil prices may rise due to geopolitical tensions. The Bloomberg consensus forecast has Brent pegged at $78 a barrel for 2024, as per Emkay Global. Historically, crude prices have an asymmetric relationship with Indian equities. Analysts said crude oil exhibited significant volatility following heightened supply concerns due to attacks in the Red Sea.
"Attacks by Yemen's Iran-aligned Houthi militants on ships disrupted maritime trade, leading companies to reroute vessels. Additionally, the weakness in the dollar index and the potential for Federal Reserve rate cuts in 2024 contributed to the increase in crude oil prices. However, concerns about Chinese demand have tempered the overall gains in crude oil," said Rahul Kalantri, VP Commodities, Mehta Equities this week.
Covid cases
Rising Covid cases are another concern for the market. Mansukh Mandaviya, Union Minister of Health and Family Welfare, on Wednesday said that mock drills will be done once every three months at both Central and State levels as India saw a spike in Covid-19 cases, with 614 fresh infections recorded in the past 24 hours. This surge in cases is due to the Covid sub-variant JN.1, which was first detected in Kerala.
Also read: Stock recommendations by market analysts for December 21, 2023: Oil India, ONGC and Asian Paints
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