Why is the Indian Stock Market Falling? These 4 Factors Are Responsible

The Indian stock market has been experiencing a continuous decline, leaving investors concerned. Several factors are contributing to this downturn, including global uncertainties, domestic policy changes, and foreign investor behavior. Here are the four key reasons behind the recent market slump:

1. New Income Tax Bill Sparks Caution

The upcoming Income Tax Bill has created uncertainty among investors. Finance Minister Nirmala Sitharaman announced the new bill during her budget speech on February 1, and it is expected to be presented in the Lok Sabha soon. Reports suggest that the bill may impose higher taxes on financial securities, leading to panic selling in the market. Investors are adopting a cautious approach, which has further fueled the sell-off.

2. US Fed Chair Jerome Powell’s Hawkish Comments

The US Federal Reserve Chair, Jerome Powell, recently confirmed a cautious stance on interest rate cuts during his testimony before Congress. He stated that the central bank is not under pressure to reduce rates in the near future due to persistent high inflation and a strong job market. This has dashed hopes of additional rate cuts in 2025, causing global markets, including India, to react negatively.

3. Aggressive Selling by Foreign Portfolio Investors (FPIs)

Foreign Portfolio Investors (FPIs) have been offloading Indian equities aggressively since October last year. Cumulatively, they have sold over ₹2.8 lakh crore worth of Indian stocks. Factors such as rising valuations, weak quarterly results, a depreciating rupee, and a strong US dollar have driven this massive capital outflow. The continuous selling by FPIs has significantly impacted market sentiment.

4. Trump’s Tariff Policies Fuel Trade War Fears

US President Donald Trump’s tariff announcements have added to the global market turmoil. Trump recently increased tariffs on steel and aluminum imports to 25%, targeting countries like Mexico, Canada, and China. This move has raised concerns about a potential trade war, causing volatility in global markets, including India. The uncertainty surrounding these policies has further dampened investor confidence.

Conclusion

The Indian stock market’s decline is a result of a combination of domestic and global factors. While the new Income Tax Bill and FPI selling are internal challenges, external factors like US Fed policies and Trump’s tariffs have amplified the downturn. Investors are advised to stay cautious and focus on long-term strategies amid the ongoing volatility.

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