The Indian stock market suffered significant losses in the morning trade on Monday, January 27, with the benchmark Sensex falling over 800 points and the Nifty 50 plunging to the level near 22,800 on the downside amid a sharp selloff across sectors
The mid and smallcap segments suffered even deeper cuts as the BSE Midcap index cracked 3 per cent and the Smallcap index plunged over 4 per cent during the session. BSE-listed firms’ overall market capitalisation (m-cap) dropped below ₹410 lakh crore from ₹419.5 lakh crore in the previous session, making investors lose nearly ₹10 lakh crore in a single day.
Why is the Indian stock market falling today?
Experts highlighted these five key factors behind the sharp selloff in the Indian stock market:
- Budget in focus
Investors are focused on Budget 2025, which is expected to balance fiscal prudence with measures boost consumption. Some experts believe the Budget could have shades of populism, and if the government lowers growth guidance or relaxes its fiscal discipline, it may further weaken market sentiment.
“A populist budget may strain the fiscal deficit and result in further weakness in the rupee, leading to lower rate cuts and delays in economic growth. Any miss on the fiscal prudence or lower growth guidance may trigger a further selloff in the markets,” said Deepak Ramaraju, Senior Fund Manager at Shriram AMC.
- Weak Q3 earnings
Indian corporates’ December quarter (Q3) earnings have been weak, dampening investor risk appetite. Many sectors have delivered a slower-than-expected recovery, further worsening sentiment already weighed down by stretched valuations and global uncertainty. - Massive foreign capital outflow
Foreign portfolio investors (FPIs) have been selling Indian equities since October last year, taking away nearly ₹2.5 lakh crore. In January so far, they have offloaded over ₹69,000 crore in Indian equities till January 24.
The relentless selling by FPIs is driven by the recent currency depreciation, the rise of crude oil prices, and the fact that the US Fed has not agreed to reduce interest rates. The FPIs are getting a 5.5 to 6 per cent risk-free return on US Treasury bonds, which is a big deterrent to remaining invested in India,” said Devang Kabra, co-fund manager at Wallfort PMS.
- The US Fed factor
The US Federal Open Market Committee (FOMC) meeting is scheduled for January 28-29. In 2024, the US Fed reduced interest rates by a full percentage point. However, many experts believe the rate-cutting cycle may have ended, and the Fed is likely to maintain the status quo in January. This expectation stems from strong recent macroeconomic data and a cautious approach to assessing the impact of Donald Trump’s policies.
- The US Fed factor
The US Federal Open Market Committee (FOMC) meeting is scheduled for January 28-29. In 2024, the US Fed reduced interest rates by a full percentage point. However, many experts believe the rate-cutting cycle may have ended, and the Fed is likely to maintain the status quo in January. This expectation stems from strong recent macroeconomic data and a cautious approach to assessing the impact of Donald Trump’s policies.
- Concerns over Trump’s tariff policies
Markets across the globe are closely monitoring US President Donald Trump’s tariff policies. After imposing tariffs on Canada and Mexico, Trump threatened a 25 per cent tariff on Colombia for its refusal to take back deported illegal immigrants. Media reports suggest that Colombia has agreed to accept military aircraft carrying deported migrants.
A major concern is that President Trump is coming up with new threats like the 25 per cent tariff on Columbia for its refusal to take back deported illegal immigrants. The threatened 25 per cent tariff on Canada and Mexico might be implemented from February 1st onwards. Therefore, Trump will walk his talk on other threats, including tariffs on China and other countries, which is a question that is being asked in economic and market circles now. These concerns are weighing on the markets,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.