5 Reasons Why Markets Shed A Whopping 12 Lakh Crore Valuation Today

Indian equities witnessed a sharp sell-off on Monday as a spike in crude oil prices, foreign investor outflows and a broader global risk-off sentiment rattled markets. The BSE Sensex plunged more than 1,300 points and settled at 77,566, while the Nifty 50 slipped 422 points to touch 24,028. Investors lost over 12 lakh crore in a day due to the market rout. The decline came as investors reacted to a mix of geopolitical tensions, currency pressure and global market weakness -- factors that collectively triggered widespread selling across sectors.

Here are five key reasons behind the market crash:-

1. Crude oil surge rattles markets: The biggest trigger for Monday's sell-off was a sharp spike in crude oil prices. Brent crude surged over 15% to around $107 a barrel, briefly logging intraday gains of nearly 20% and extending last week's rally of about 28%. The jump pushed oil prices past the $100-per-barrel mark for the first time since 2022.

For India, which imports nearly 85% of its crude requirement, such spikes have far-reaching macroeconomic implications. "Crude oil remains one of the most critical macro variables influencing the Indian economy and financial markets. India imports around 85% of its crude oil requirement, making it highly sensitive to global oil price movements. A sustained increase in crude oil prices can have wide-ranging implications for inflation, currency movement, corporate profitability and equity market valuations," said Uttamk Srimal, Deputy Head of Research at Axis Securities.

Historically, periods of sharp crude price increases have coincided with inflation spikes, rupee depreciation and pressure on oil-dependent sectors. Even a $1 increase in crude prices can raise India's annual import bill by roughly $1.5-2 billion.

Ashish Padiyar, Managing Partner at Bellwether Associates LLP, said, "Major reason for current market scenario include: Brent crude is up by more than 15% today and Iraq, Kuwait, and other oil producing nations have announced out cuts. This crude price spikes directly impact Indian oil marketing companies' cost structures and can trigger imported inflation and a wider current account deficit."

2. Foreign investors turned aggressive sellers: Foreign portfolio investors (FPIs) have also been pulling money out of Indian equities in recent sessions, adding to the downward pressure. According to PTI data, FPIs withdrew nearly Rs 21,000 crore (around $2.3 billion) from the cash market between March 2 and March 6 across four trading sessions. The selling comes after a strong inflow phase in February, when overseas investors pumped Rs 22,615 crore into Indian equities, the highest monthly inflow in 17 months. Such sudden reversals in global capital flows tend to amplify market volatility, especially when geopolitical tensions are already weighing on investor sentiment.

3. Rupee weakens close to record low: The sharp fall in the rupee added another layer of anxiety for investors. The currency plunged 46 paise to around 92.28 against the US dollar in early trade, moving close to its all-time intra-day low of 92.35 recorded earlier this month. Forex traders attributed the weakness to rising crude oil prices, a stronger US dollar, foreign investor outflows and weak domestic equities. Crude oil is purchased in US dollars, meaning higher oil prices increase demand for the American currency. This, in turn, puts pressure on India's foreign exchange reserves and often leads to rupee depreciation.

4. Global market rout spills into India: Indian markets were also reacting to a broader global sell-off as investors rushed to safer assets amid rising geopolitical uncertainty.

Asian markets saw steep declines on Monday:
    •    Japan's Nikkei 225 fell about 7%
    •    South Korea's Kospi dropped more than 7%
    •    Taiwan markets slipped nearly 6%
    •    Hong Kong's Hang Seng declined over 2%

Wall Street had already closed lower on Friday, with the S&P 500 falling 1.33 per cent and the Nasdaq dropping 1.53%.

Yetender Sharma, Managing Director at Supertech EV Limited, said, "The sharp drop in Indian equities, is due to a mix of global and domestic factors. A rise in geopolitical tensions, a rise in crude oil prices, persistent outflows of foreign institutional investors, weakening in global markets, and currency volatility have collectively triggered a risk-off sentiment among investors."

5. Broad-based selling across sectors: The sell-off was widespread, with all major sectoral indices opening in the red. Some of the worst-hit segments included PSU banks, auto stocks, media, consumer durables, IT and FMCG companies.

Companies that depend heavily on oil derivatives, including aviation, paints, chemicals, tyres and automobiles, are particularly vulnerable when crude prices surge. Fuel accounts for nearly 30-40% of airline operating costs, while petroleum derivatives are widely used as raw materials in sectors such as paints, chemicals and tyres. As a result, higher crude prices can significantly squeeze corporate margins.

Deepak Kumar, Director at Avax Apparels and Ornaments Limited, said, "The volatility in the current market highlights how global investors are being more careful amid several macroeconomic changes. Concerns with rising inflation in big economies, uncertainty about the direction of global interest rates, persistent withdrawals of foreign institutional investors from emerging markets, changes in commodity prices, and geopolitical instability, have all weighed down on the current market sentiment."