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5 Reasons Why Sensex is Falling Research Team | Posted On Wednesday, March 04,2020, 03:41 PM

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5 Reasons Why Sensex is Falling



The dramatic fall of the Indian benchmark indices, opening with a 5-month low that led to a colossal sell off of global stocks. A sudden fall in the Sensex can be primarily attributed to the economic slowdown and other global factors that have led to panic among investors. In the intra-day deals, the Sensex has indicated a fall of 1194 points while Nifty 50 index has declined 363 points. Concerns among global investors driven by the outbreak of coronavirus and the China-U.S conflict have triggered the fall of the global equity market. Similarly, negative sentiments are seen among the domestic retail investors driven by the weakening of India’s GDP and the core sectors.

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5 Reasons Why Sensex is Falling

Here are some of the top factors why Sense is falling sharply:

Global Trend:

As we know, the American stock market is one of the major markets. The rise and fall of the American stock markets affect global trade. The escalation of problems among China and U.S over the hike of import duty on Chinese goods has lead investors to panic and take a low-risk approach. The investors are seen exiting equities investments for gold investments.

The impact is not only visible in India stock markets on account of the US-China tensions, similar trends were also experienced by other major Asian markets of China, Japan and Korea. The European stock markets have also opened at least 6% lower amid the global turmoil.

See Also: Stock Market In India

Outflows of Foreign Institutional Investors:

Another major factor that has led to the downfall of the Sensex is due to the cash outflows triggered by foreign institutional investors. The foreign investors are known to pool large sums of money and invest in securities and investment assets. As a major share of their investments lies in the stock market, the cash inflows and outflows by FIIs significantly affect the stock market movements. The Sensex is experiencing a downward trend as the FIIs have withdrawn Rs. 10,000 crore of investments from the domestic market this week thereby pulling the indices down by 4%.


When it comes to the financial market, uncertainty is the most unfavourable option as it makes planning for business difficult. So, the spread of a global disease like Covid-19 fuels panic in the markets. In such a situation most investors prefer existing stock market to invest in safe-haven assets like gold.

The situation can be compared to the 2003 stock market crash due to the spread of the SARS Virus. According to the reports of Credit Suisse, the contention of Covid-19 is difficult as it is a transferable disease. Thus the economic damage of this disease is more profound.

The latest reports on coronavirus show that more than 82,100 people are infected with a death toll of 2800 worldwide. The virus has hit almost 45 countries thus halting economic activities to some extent. The ability of the virus to halt travel and reduce consumption, are some of the ways the outbreak is likely to pose economic implications.

See Also: All You Need To Know : How Stock Markets Function

GDP Data:

The GDP data can be an additional reason why Sensex is showing a downward trend. The GDP is one of the main factors that affect the movements of the Stock market. When GDP falls, the businesses and consumers tend to spend less thus driving the markets lower. Economic analysts have cited that the GDP growth of India will not show much improvement.  Government data reveals that India’s GDP growth for the third quarter (October to December) stood at 4.7% which is the weakest GDP growth slated in more than six years.


The financial markets like Sensex and Nifty are linked and change of prices of commodities affect the price movements in the stock market. As the investors are exiting the stock market, they are flocking to invest in gold leading to a surge in the prices of Gold. Thus the change in the prices of commodities has a trickle-down effect that finally influences the price of stocks. The change in the price of commodities affects the operational cost of core industries since the most basic commodities and raw materials are traded in the commodities market. Consequently, a dip in the prices of the crude oil can have a severe impact on the economy as it shows slowing global demand.

See Also: Bond Market Vs Stock Market - What is the Difference?

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