The Indian stock market experienced a severe downturn on Monday, with the Sensex crashing by 1,048 points, ending the day at 76,330 marking the fourth consecutive day of sharp sell-offs.
The overall market capitalisation of BSE-listed firms plunged from ₹430 lakh crore to ₹417 lakh crore, resulting in a loss of around ₹13 lakh crore in a single day.
Falling for the fourth straight session, the 30-share BSE benchmark Sensex tanked 1,048.90 points or 1.36 per cent to settle at 76,330.01. The NSE Nifty dropped 345.55 points or 1.47 per cent to close at 23,085.95.
The decline in stock values was exacerbated by multiple factors, including rising crude oil prices, a weakening rupee, and a massive outflow of foreign capital.
The Sensex opened at 76,629.90 points, down from its previous close of 77,378.91 points, and reached an intraday low of 76,249.72 points, finally crashed by 1,048 points, ending the day at 76,330. The Nifty 50 index also dropped by over 384 points, or 1.6%, to settle at 23,047.25.
By the end of the trading session, the Sensex closed at 76,330.01, down 1.36%, while the Nifty 50 ended the day at 23,085.95, down 1.47%.
The sell-off was particularly harsh in the mid and small-cap segments, which have been under pressure recently. The BSE Midcap and Smallcap indices both recorded losses of 4%, highlighting the broader market weakness. Over the past four trading sessions, investors have lost a cumulative ₹25 lakh crore.
Several factors have contributed to this steep decline in the market. First, the surge in global oil prices has significantly impacted investor sentiment.
Crude oil prices hit their highest levels in three months, driven by expectations that the US sanctions on Russia could disrupt global oil supplies, particularly to major importers like India and China.
As one of the largest importers of oil, India faces increasing pressure on its fiscal health with rising crude prices, particularly at a time when inflation is already a concern, and economic growth appears to be slowing.
In addition to rising oil prices, the Indian rupee reached a new all-time low of 86.61 against the US dollar on Monday, contributing to the market's woes.
The strength of the US dollar, bolstered by a strong US payroll report, compounded the problem, making imports more expensive for India and further straining the economy.
Another factor weighing heavily on the stock market is the uncertainty surrounding US trade policies, especially with the upcoming inauguration of President Donald Trump. Speculation is rife that Trump may impose higher tariffs on countries like India, which could further erode investor confidence.
A potential second term for Trump is seen as a risk for export-driven economies like India, with trade protectionism and changes in global economic dynamics potentially posing challenges.
The ongoing massive sell-off by foreign portfolio investors (FPIs) has also contributed to the market's decline. Since October of the previous year, FPIs have withdrawn substantial amounts from the Indian stock market, with over ₹21,350 crore sold off in the first ten days of January alone.
This is part of a broader trend, with foreign investors pulling out significant amounts of capital in recent months, driven by rising US bond yields, a strong US dollar, and a lack of optimism regarding India's earnings growth.
Moreover, the upcoming Union Budget 2025 has created additional caution among investors. With expectations that the government may take a more cautious and fiscally prudent approach, the market is wary of a populist budget that could disappoint and further dampen sentiment.
The diminishing hopes of a rate cut by the US Federal Reserve in 2025 have added to the overall sense of unease. Strong US economic data, particularly in job growth, has made the possibility of a rate cut seem increasingly unlikely, which could have implications for emerging markets like India.
On the domestic front, there are concerns about the earnings season, with expectations that Q3 earnings will remain subdued, following weak performances in Q1 and Q2. Experts predict a recovery may only materialise by Q4, keeping market pressure high for the time being.
Finally, India's economic growth outlook has also come under scrutiny. The country's GDP growth forecast for FY 2024-25 has been revised down to 6.4%, a sharp decline from the previous year's growth rate of 8.2%.
This slowdown has prompted concerns about downgrades in India's growth trajectory, further triggering the fall in the rupee and the outflow of foreign capital.
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