The Indian stock market experienced a massive sell-off on January 21, 2025, as the BSE Sensex plunged by over 1,200 points, while the NSE Nifty fell by 320 points.
The 30-share BSE Sensex plummeted 1,235.08 points or 1.60 per cent to settle at 75,838.36 dragged by losses in ICICI Bank and Reliance Industries. During the day, the BSE benchmark plummeted 1,431.57 points or 1.85 per cent to hit an intraday low of 75,641.87.
The broader NSE Nifty plunged 320.10 points or 1.37 per cent to close at 23,024.65. In the intraday trade, the NSE Nifty plunged 367.9 points or 1.57 per cent to 22,976.85.
This significant downturn wiped off around ₹7 lakh crore in market capitalisation, highlighting the growing concerns among investors. The downturn was primarily driven by several factors, both domestic and international, that have placed added pressure on the market.
A major contributor to the market crash was the uncertainty surrounding the trade policies of US President Donald Trump. In his inaugural address, Trump made several announcements, including the imposition of tariffs on neighbouring countries like Canada and Mexico.
He also threatened to impose higher tariffs on other countries, including India, raising fears about the potential economic impact on India and its key sectors.
Experts noted that while Trump's stance on immigration was clear, his approach to tariffs remained vague, leaving investors unsure about the future trajectory of US trade policies.
This uncertainty weighed heavily on market sentiment, particularly as the Indian economy is highly integrated into the global trade network.
Another significant factor behind the market slump was the growing caution ahead of India's Union Budget 2025, scheduled for February 1.
Investors were closely watching the government's fiscal policies and the potential measures that Finance Minister Nirmala Sitharaman might announce to support consumption, rural development, manufacturing, and infrastructure growth.
Any deviation from expectations or disappointment in key announcements could further dampen market sentiment, making investors increasingly wary.
Foreign capital outflows also contributed to the market's negative performance. Foreign portfolio investors (FPIs) have been selling Indian equities aggressively, largely due to the strengthening US dollar and rising bond yields.
Since the beginning of January, FPIs have offloaded nearly ₹51,000 crore of Indian stocks, contributing to the overall downward pressure on the market. This relentless selling has exacerbated the negative sentiment among domestic investors, who are now finding it difficult to see any significant short-term recovery.
The earnings reports for the third quarter of the financial year also played a role in dampening market sentiment. Following weak earnings in the first two quarters, the December quarter reports failed to show substantial improvement, with many companies across various sectors reporting mixed results.
This disappointing earnings performance has contributed to a lack of investor confidence, as corporate profits remain weak despite the underlying strength of the Indian economy.
Additionally, concerns over the weakening macroeconomic conditions in India have added to the cautious outlook. The economy is showing signs of sluggish growth, particularly in the demand sector.
The lack of broad-based demand growth is delaying the anticipated surge in private sector capital expenditure (capex), which is crucial for the country’s economic revival. Government spending on infrastructure has also slowed down, further impacting employment, especially in the non-farm sector.
Despite several policy interventions aimed at boosting growth, the economy continues to face challenges, which has led to a more cautious approach from investors.
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