The Indian stock market extended its losing streak for the fourth straight day on Monday, January 13th. A confluence of factors, including soaring crude oil prices, a weakening rupee, and significant foreign fund outflows, fueled the sharp selloff across all sectors.
The Sensex plunged over 950 points (1%) to an intraday low of 76,428.28, while the Nifty 50 fell over 320 points (1%) to 23,109. Midcap and smallcap stocks were hit hardest, with the BSE Midcap and Smallcap indices both declining by 4%.
By 2:10 PM, the Sensex had declined by 925 points (1.20%), trading at 76,454. The Nifty 50 also experienced a significant drop, falling 319 points (1.36%) to 23,113.
The overall market capitalization of BSE-listed companies contracted sharply today, dropping from ₹430 lakh crore to ₹418 lakh crore. This resulted in a market capitalization loss of nearly ₹12 lakh crore. Cumulatively, investors have suffered losses of around ₹24 lakh crore over the past four trading days.
8 Factors: Analyzing the Indian Stock Market's Downturn
1. Oil Prices
Oil prices surged to their highest level in over three months on Monday, driven by expectations that new US sanctions will disrupt Russian crude oil exports to major importers like China and India.
Rising crude oil prices negatively impact India’s fiscal health, particularly given its status as a major oil importer. This comes amidst concerns about inflation and slowing economic growth, further dampening investor sentiment. Additionally, it may weaken the rupee and exacerbate foreign capital outflows.
2. Indian Rupee Reaches New Low
The Indian rupee plummeted to a record low of 86.59 against the US dollar on Monday. This sharp depreciation was fueled by a surge in crude oil prices and a strong US dollar, which held near 14-month highs following a robust jobs report. The dollar index climbed 0.22% to a two-year peak of 109.72, while 10-year US Treasury yields remained elevated, reaching their highest level since October 2023 at 4.76%.
3. Heavy FPI Selling
Foreign Portfolio Investors (FPIs) have been relentless sellers in the Indian equity market since October last year. They offloaded over ₹1.14 lakh crore in October, followed by ₹45,974 crore in November. The selling continued in December, with FPIs withdrawing ₹16,982 crore. This trend persisted into January, with FPIs selling over ₹21,350 crore of Indian equities by January 10th.
- US Interest Rates Going Up: When interest rates in the US rise, it becomes more attractive for investors to put their money in US investments instead of India.
- The US Dollar is Getting Stronger: This makes Indian investments less valuable compared to US investments.
- Less Hope for US Interest Rate Cuts: Investors were hoping the US would lower interest rates soon, but now it looks less likely, which makes them less interested in riskier investments like Indian stocks.
- Indian Stocks Might Be Overpriced: Some investors think Indian stocks are currently too expensive compared to their actual value.
- Companies Aren’t Doing as Well: Many Indian companies haven’t reported strong financial results recently, which makes investors less confident.
5. Budget 2025: A Time for Caution
Experts are hoping the government will be careful with its spending in the upcoming budget and also do things to encourage people to spend more money and help the economy grow.
However, there’s a worry that the budget might focus too much on pleasing people in the short term, like the last one did. If this happens, it could disappoint investors and make the stock market go down even further.
Basically, everyone is hoping for a budget that helps the economy in the long run while also being responsible with the government’s money.
6. US Fed Rate Cut Expectations Weaken
In December, the US economy added many more jobs than experts expected. They thought around 160,000 new jobs would be created, but the actual number was much higher at 256,000. This is the biggest increase in new jobs since March.
7. Fears of Soft Q3 Earnings
The first and second quarters of this year saw disappointing earnings for many companies. Experts believe that while some sectors might show slight improvement in the third quarter, a significant recovery is unlikely until the fourth quarter. This suggests that the stock market may continue to face challenges for some time.
8. Fears of Economic Slowdown
The Indian economy isn’t growing as fast as it used to. Many experts are now predicting slower growth than they did before. This worries both Indian and foreign investors, because the strong growth of the Indian economy was a big reason why they invested in India’s stock market.
