The Indian stock market continued its downward spiral for the fourth consecutive session on Monday, January 13, as rising crude oil prices, a weakening rupee, and persistent foreign capital outflows spooked investors. The Sensex plunged over 800 points, while the Nifty 50 tanked more than 250 points, leaving market participants grappling with significant losses.
Market Highlights
- The Sensex opened at 76,629.90, down from its previous close of 77,378.91, and hit an intraday low of 76,535.24, marking a decline of over 1%.
- The Nifty 50 opened at 23,195.40, falling sharply to 23,172.70, down 1.1% from its previous close of 23,431.50.
- Midcap and smallcap indices bore the brunt of the selloff, with both declining up to 2%.
- The overall market capitalization of BSE-listed firms dropped by nearly ₹5 lakh crore within minutes of trading, reducing the total to approximately ₹425 lakh crore from ₹430 lakh crore.
- Investors have collectively lost ₹17 lakh crore in the last four trading sessions.
Key Factors Driving the Selloff
1. Oil Prices Surge
Crude oil prices surged to a three-month high on Monday, driven by expectations that US sanctions on Russia will disrupt crude supplies to major importers like India and China. The Biden administration’s new sanctions aim to curb Russia’s oil and gas revenues.
India, being a major oil importer, is particularly vulnerable to rising crude prices, which exacerbate inflationary pressures and worsen the country’s fiscal deficit. Investor sentiment has taken a hit amid these macroeconomic challenges.
2. Rupee Hits Record Low
The Indian rupee fell to an all-time low of 86.27 against the US dollar in early trade, as higher crude oil prices and a stronger dollar added pressure. The dollar index, which measures the greenback against six major currencies, climbed to 109.72, a two-year high. Meanwhile, US bond yields also surged, with the 10-year Treasury yield touching 4.76%, further straining emerging markets like India.
3. Trump’s Trade Policies Fuel Uncertainty
Donald Trump’s return to the White House next week has sparked speculation about potential trade policy changes, including higher tariffs on Indian exports. Experts warn that protectionist policies could disrupt Asia’s economic landscape, creating risks for export-driven economies like India.
4. Massive FPI Selloff
Foreign portfolio investors (FPIs) have offloaded Indian equities worth ₹21,350 crore in January so far, following heavy outflows of ₹16,982 crore in December. The relentless selling, driven by rising US bond yields, a strong dollar, and stretched valuations, has compounded the market’s woes.
5. Pre-Budget Jitters
With the Union Budget 2025 around the corner, markets are on edge. Analysts expect the government to focus on fiscal prudence while addressing slowing consumption and tepid rural demand. However, fears of another populist budget could further dampen investor confidence.
6. US Fed Rate Cut Hopes Dwindle
Strong US economic data, including robust job growth in December, has diminished hopes of a Federal Reserve rate cut this year. The Fed’s cautious stance on inflation is likely to keep emerging markets under pressure, as investors seek safer assets in the US.
Sectoral Impact
The selloff has been broad-based, with significant losses in banking, IT, and energy stocks. Midcap and smallcap indices have seen sharper declines, reflecting waning risk appetite among investors.
What Lies Ahead?
As global uncertainties loom large and domestic challenges persist, market participants will closely monitor crude oil prices, rupee movement, and the upcoming Union Budget for cues. Investors are advised to tread cautiously in these volatile times.
