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Indian benchmark equity indices BSE Sensex and Nifty50 extended their intraday losses on Monday; Key reasons why market is falling today
Stock Market Crash
Stock Market Crash: Indian blue-chip indices, Sensex and Nifty, saw significant declines on Monday, reacting to a stronger-than-expected US jobs report that dampened hopes for early interest rate cuts by the Federal Reserve. Slowing earnings growth also weighed heavily on market sentiment.
The BSE Sensex dropped more than 1,100 points, reaching a low of 76,250, while the Nifty50 lost 350 points, sliding to 23,047.
Market capitalization across all BSE-listed companies fell by Rs 14.54 lakh crore, totaling Rs 416.08 lakh crore.
Key Factors Fueling Sensex Crash Today
US Economic Data and Fed Rate Outlook: The US jobs report, released last Friday, shocked global markets, fueling fears that the Federal Reserve may delay its anticipated rate cuts. The US unemployment rate fell to 4.1% in December, with robust job growth, suggesting that monetary easing is less likely in the near term. This has led to tighter global liquidity, placing additional pressure on emerging markets like India.
“Markets are under pressure due to multiple headwinds. The strong US jobs data has reduced expectations of rate cuts by the Fed in 2025, now forecasting just one cut,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services. “The rise in US bond yields will likely continue to drive foreign selling in Indian equities,” Vijayakumar added.
Persistent Foreign Selling: Foreign portfolio investors (FPIs) have continued their aggressive selling of Indian stocks. In January alone, FPIs have sold equities worth over Rs 21,350 crore, following Rs 16,982 crore in outflows in December. This sustained selling pressure is attributed to concerns over stretched valuations, disappointing corporate earnings, and rising US bond yields.
Crude Oil Price Surge: Global crude oil prices soared to a 15-week high amid new US sanctions on Russia, which could disrupt global supply chains. As a major importer of oil, India is particularly vulnerable to rising crude prices, which can strain fiscal health and exacerbate inflationary pressures, further adding to investor anxiety.
Weakening Rupee: The Indian rupee hit an all-time low of Rs 86.27 against the US dollar in early trade on Monday. The strong dollar, driven by rising US bond yields and robust employment data, has placed downward pressure on the rupee. This depreciation is likely to aggravate capital outflows and increase import costs, compounding investor concerns.
Global Market Selloff: Asian markets mirrored the weakness in US equities, with the MSCI index of regional stocks heading toward its fourth consecutive day of losses. Strong US economic data has dampened expectations of Federal Reserve rate cuts, leading to a broader global selloff in both equities and bonds. The combination of domestic pressures, such as the weakening rupee and foreign outflows, along with global headwinds like higher crude prices and tighter liquidity, has created a challenging environment for Indian markets.
Bond Yields: The 10-year US Treasury yield surged to 4.73%, its highest level since April, following the release of strong job data and robust services sector performance. Analysts now expect the Fed to hold rates steady in January, further strengthening the dollar and pushing bond yields higher.
“With the US 10-year bond yield above 4.7%, foreign institutional investors (FIIs) will likely continue their selling, although this presents opportunities for long-term investors to buy large-cap stocks, particularly in banking. However, the broader market will remain under pressure,” said Vijayakumar.
Rupee Hits Record Low: The Indian rupee fell 23 paise to a record low of 86.27 against the US dollar in early Monday trade, as the dollar index hovered around 109.9. Currency depreciation and foreign outflows are closely linked, as FII outflows exacerbate pressure on the rupee, and a weaker rupee increases currency risk for FIIs, potentially triggering even more outflows.
Earnings Downgrade: After four consecutive years of strong double-digit growth, Indian corporate earnings have started to slow, with analysts downgrading earnings projections for the last two quarters. Q3 results are unlikely to offer positive surprises, and brokerages are forecasting single-digit earnings growth for the full FY25 year.
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