Why is the Market Falling? Key Factors and Expert Analysis
5 Dariya News
12-Feb-2025
Investors are worried about the recent sharp decline in the stock market, which has been much talked about. On February 11, 2025, the BSE Sensex fell 1,106 points or 1.43% to 76,205.52, while the Nifty 50 fell 349 points or 1.49% to 23,032.
This decline has affected many industries, with smallcap and midcap indices seeing significant declines. Investors must understand the reasons for this decline in the market to make wise choices and successfully deal with the current economic environment.
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Main Factors Contributing to the Market Fall
Several factors are responsible for the recent market decline:
High Bond Yields and Dollar Index
The yield on the U.S. 10-year Treasury is at 4.495%, while the yield on the 2-year Treasury is at 4.281%. With the dollar index at 108.36, the strong dollar has prompted more money to flow out of emerging countries like India. Rising bond rates make U.S. assets more attractive, while higher foreign capital spending brought on by the rising dollar dampens market optimism.
Trump's Tariff Policies
President Donald Trump's plan to raise tariffs on steel and aluminum imports has rekindled fears of a wider trade war. The increase in aluminum tariffs from 10% to 25% and the return of a 25% tax on steel imports for countries previously exempted have raised concerns about global economic growth.
Foreign Fund Outflows
Due to the continuous selling by foreign institutional investors (FIIs), the valuations of large-cap companies have become reasonable, while the valuations of mid-cap and small-cap stocks are still high. This continuous selling has further aggravated the decline in the market.
Valuation Concerns in Mid- and Small-Caps
There are still issues with values in the midcap and smallcap categories. V K Vijayakumar, chief investment strategist at Geojit Financial Services, claims that largecaps offer more opportunities for patient investors while mid and smallcap values remain overbought.
Global Economic Pressures
Disappointing corporate profits and rising US trade tensions have squeezed markets even further. Both S&P 500 futures and Hong Kong's Hang Seng have fallen, as have Asian markets. A strong dollar and rising gold prices are signs of a flight to safety and broader market panic.
Expert Analysis and Market Outlook
Expert Warnings
ICICI Prudential AMC CIO S Naren has advised investors to sell midcap and smallcap companies due to their "absurd" valuations.
Broader Market Sentiment
According to Akshay Chinchalkar, head of research at Axis Securities, Nifty fell for the fifth consecutive session, the first time since December 2024. He said nearly 96% of the constituent members of the NSE 500 closed in the red, indicating a gloomy prevailing sentiment, while broader benchmarks underperformed.
Opportunities in Large Caps
According to V K Vijayakumar, patient investors can find opportunities in high-quality largecaps, especially in industries such as capital goods, banking, IT, automobiles and pharmaceuticals.
Historical Perspective and Future Predictions
Market Crash Predictions for 2025
Financial analysts have expressed concern about a potential market collapse in 2025. Several factors, including inflation, geopolitical tensions, technology turmoil and high U.S. stock valuations, could cause a market decline.
Warning Signals
A market recession may be imminent, so investors should carefully monitor warning signs including deteriorating GDP, job market growth and yield curve inversion.
Expert Opinions
Global issues and market overvaluation have prompted economists such as Jeremy Grantham to warn of a potential "catastrophic decline". Additionally, Robert Kiyosaki cautioned investors about a catastrophic decline in February 2025.
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