The Indian stock market has been experiencing a downturn due to several interrelated factors:
1. Global Trade Tensions:
The recent announcement by U.S. President Donald Trump to impose a 25% tariff on all steel and aluminum imports, along with reciprocal tariffs on various countries, has heightened global trade tensions. This move has particularly impacted Indian metal stocks, with companies like Tata Steel and JSW Steel witnessing declines of around 4% each.
2. Depreciation of the Indian Rupee:
Concerns over the new U.S. trade tariffs have led to the Indian rupee falling to a record low of 87.95 per U.S. dollar. The Reserve Bank of India (RBI) has intervened to stabilize the currency by selling dollars through state-run banks. Despite these efforts, the rupee’s depreciation has raised concerns about increased import costs and potential inflationary pressures.
3. Foreign Institutional Investor (FII) Outflows:
Since October 2024, there has been a significant sell-off by foreign institutional investors, leading to substantial capital outflows. This trend has exerted downward pressure on the market indices.
4. Weak Corporate Earnings:
Several companies have reported disappointing third-quarter earnings, which has dampened investor sentiment. For instance, Oil India reported lower-than-expected profits, leading to a 4% drop in its share price.
5. Elevated Market Valuations:
Despite the recent corrections, market valuations remain high. Analysts have expressed concerns about the sustainability of these valuations, especially in the face of external economic challenges and potential earnings downgrades.
These factors, combined with global economic uncertainties, have contributed to the ongoing decline in the Indian stock market.
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