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Correction or Crash! Why Market is Falling?

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The share market, where everyone believes a person can earn a lot of money, is not in a good condition. The market has disappointed investors and speculators since the beginning of this year. Nifty 50 has fallen by 3.49% since the beginning of the year till date, February 20, 2025, and by 2.45% alone in the month of February. It seems the bears are dominating the bulls.

YouTube's so-called finfluencers are proclaiming this is a crash and claiming that the market will decline even more, making such comments as "the market will crash even more." Is this actually a crash or a correction, though? As for YouTubers, they only care about getting views on their videos. They know that if they put "CRASH" in bold letters on their thumbnails, their videos will attract more views. So, in today’s blog, we’ll discuss the truth behind the hype—what’s really happening in the market.

Before we determine whether this is a crash or a correction, we must know what these terms mean. A correction is when the market declines by 10-12% in a few weeks or even sometimes months. This may be because stocks are overvalued or because investor sentiment changes. Corrections are transient and are actually required for the market to prevent extreme overvaluation. That is why regular corrections are essential for a healthy market. A crash is when the market declines by 15-20% or even more. The decline can go on for weeks or even months. A crash typically occurs due to panic selling, poor economic conditions, or financial crises. The loss in a crash is much more than in a correction, and at times even marks the beginning of a recession.

So, why is the market falling? Here are the three main reasons:

Foreign Portfolio Institutions (FPIs) High Sellers

FPIs are selling out of the Indian market and taking profits, saying the market is severely overbought—and they're correct. People have been investing in the stock market as if they have a 100% guarantee that their money will double or triple in a few days.

Because of social media, which has created so much hype, most retail investors are suffering from FOMO (Fear of Missing Out)—they think that unless they invest in the stock market, they will be poor for life. This resulted in a lot of money pouring in, sending company valuations to extremely high levels, and the market getting overvalued.

The second factor that FPIs are exiting is China. The Shanghai Stock Exchange (SSE) Composite Index has increased by 23% in the past six months due to pro-business policies of the Chinese government. Due to this reason, foreign institutions are shifting their investments from the Indian market to the Chinese market.

Trump's Tariffs

Donald Trump, the new United States President, has begun proposing tariffs that would impact both nations as soon as he was sworn in, and we can already witness its impact in our market. A significant portion of Indian businesses' funds is derived from exporting goods overseas, particularly to North America. If Trump implements these tariffs, it will have a direct effect on the funds and profits of these businesses. Due to this concern, numerous individuals are selling stocks in the Indian market.

Weak Q3 Results

One of the major reasons behind the decline of the stock market is poor corporate earnings in Q3 of FY25. Various companies have posted single-digit growth in earnings, which is not sufficient to justify high stock prices. If a company is on a high valuation but has poor earnings, a price correction is bound to happen. This is the very reason why the market has been closing red on a day-to-day basis.




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Location: New Delhi, Delhi, India

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