Why Did The Sensex Tanked Nearly 1,000 Points After US Fed Rate Cut— Key Factors Explained

Indian stock markets witnessed a significant crash on Thursday (19 December) as benchmark indices opened sharply lower, driven by global cues.

The Sensex plunged close to 1,000 points, while the Nifty tumbled below the 24,000 mark, following the US Federal Reserve's interest rate cut and projection of fewer interest rate cuts in 2025.

Persistent inflation and the robust performance of the US economy contributed to the cautious outlook, sparking a ripple effect in global markets.

The market capitalisation of all listed companies on the BSE shrank by Rs 5.94 lakh crore, falling to Rs 446.66 lakh crore according to The Economic Times.

Heavyweights such as HDFC Bank, Infosys, ICICI Bank, Reliance Industries, SBI, and HCL Tech together accounted for a 600-point drag on the Sensex, with Axis Bank, M&M, Kotak Bank, and Bajaj Finance further contributing to the downturn.

Key Factors Behind the Market Crash

1) Fewer Rate Cuts Signaled by the US Fed

The US Federal Reserve implemented a 25-basis-point rate cut as anticipated, but it projected only two more quarter-point reductions in 2025—lower than the three or four cuts expected by markets.

This unexpected reduction in easing triggered concerns among global investors, dampening market sentiment.

2) Rising Bond Yields and a Strong Dollar

US bond yields climbed, with the benchmark 10-year note yield touching a seven-month high of 4.524 per cent, leading to capital outflows from emerging markets like India.

A stronger dollar added to the pressure, increasing the cost of foreign capital and discouraging investments, further weighing down market sentiment.

3) Global Market Declines

Global equity markets also faced sharp declines following the Fed’s decision.

In the US, the Dow Jones Industrial Average recorded its worst day in over four months, marking its 10th consecutive loss—the longest streak since October 1974.

The S&P 500 experienced its steepest drop on a rate decision day since 2001.

The ripple effects of these declines were felt across emerging markets, including India.

The cautious Fed stance, coupled with rising bond yields and strengthening of the US dollar, has exacerbated fears of tightening global liquidity, pressuring Indian equities.

With heavyweights leading the sell-off, investor confidence remains shaken, underlining the interconnectedness of global and domestic markets.

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