Sensex crashes over 600 points: What’s behind the fall in Indian stock market & how to trade now?

Stock market today: The Indian stock market resumed its downward march on Wednesday, January 8, amid weak global cues, reinforcing doubts that the previous session’s gains were unsustainable. Market sentiment remains fragile amid a myriad of headwinds.

Equity benchmark Sensex crashed over 700 points in intraday trade, while the Nifty 50 fell below 23,500.

Sensex opened at 78,319.45 against its previous close of 78,199.11 and dropped over 700 points, or 0.90 per cent, to the level below 77,500. The Nifty 50 opened at 23,746.65 against its previous close of 23,707.90 and declined over 200 points, or 0.90 per cent, to 23,496.15.

The BSE Midcap and Smallcap indices cracked up to 2 per cent.

Vikas Jain, Head Research Analyst at Reliance Securities, pointed out that the Nifty 50 moved from 23,500 to 24,700 levels and again reversed back near to 23,500 in the last two months on the back of continuous FPI selling.

Jain said any breach of the support zone of 23,200 will push the index lower to 21,800-21,500 levels, which coincides with the long-term averages, election lows and 23.6 per cent retracement of the previous move (7,511-26,277).

Why is the Indian stock market falling?

Experts highlighted the following five key factors behind the market crash today. Take a look:

1. Weak global cues

Global weakness weighed on domestic market sentiment. Overnight, Wall Street closed lower, setting the stage for a decline in major Asian markets on Wednesday amid a strengthening US dollar and rising bond yields.

2. Waning hopes of US Fed rate cut

Experts say the strong US macro numbers are raising the prospects of a non-significant rate cut by the US Fed this year, keeping investors nervous. As Reuters reported, the US job openings in November grew to 8.098 million, exceeding forecasts for a 7.7 million rise and October’s 7.839 million number. Investors now await the US jobs report on Friday, which will significantly influence expectations about the US Federal Reserve’s interest rate trajectory.

“The trend of strong US macros weakening emerging markets is continuing. The US 10-year bond yield has spiked to 4.67 per cent on better-than-expected job numbers, indicating that the services sector is doing well. This means the Fed may hold rates in January, further strengthening the dollar and rising bond yields. The fallout of this on the Indian macros is that the RBI may hold rates in February against the market expectation of a cut,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

3. Caution ahead of Q3 earnings

Sentiment is also cautious ahead of the start of December quarter (Q3) earnings. After two consecutive weak quarters, there are expectations of some recovery in Q3 earnings. However, experts caution that there may not be an outright recovery, and a clear revival can be seen only from Q4.

4. Poor show of IT, banking heavyweights

Banking and IT stocks hold significant weightage in benchmark indices. Losses in shares of HDFC Bank, ICICI Bank, Infosys and SBI dragged the equity benchmarks lower. The Nifty Bank and Nifty IT indices dropped by 1.5 per cent each in intraday trade.

5. Foreign capital outflow

Sustained foreign capital outflow is one of the key factors that has kept the Indian stock market in the lower orbit of late. In January so far, FPIs (foreign portfolio investors) have sold off Indian equities worth over ₹8,500 crore amid strengthening US dollar and elevated US bond yields.

“The correction can be attributed to continuous FPI selling, rising dollar, rising crude, the start of result season on a cautious note, Trump assuming office in the US and its potential policy impacts shortly,” Manish Jain, Director – Institutional Business (Equity & FI) Division at Mirae Asset Capital Markets, observed.

Additional factors

Apart from the five key factors mentioned above, several other elements contribute to fragile market sentiment. These include uncertainty around Donald Trump’s trade policies, stretched valuations in the Indian market, concerns over the yen-carry trade if the Bank of Japan raises interest rates, and caution ahead of the Union Budget 2025.

“The government’s weak first advance GDP estimates for FY25 have weighed on market sentiment today. We believe that global uncertainty, especially related to the policy-making from Donald Trump, the strength in the Dollar Index and mostly modest domestic earnings expectations from the upcoming corporate results have also capped the upside in markets,” said Manish Chowdhury, Head of Research, StoxBox.

What should investors do now?

Vijayakumar said investors can take a slightly long-term view of the market and buy large-caps in financials, IT, pharmaceuticals and select autos. Vijayakumar believes these segments will bounce back in a few months when India’s macros turn positive.

According to Ajit Mishra, SVP of research at Religare Broking, one can look at the pharma and healthcare sectors for quality stocks. Besides, he said investors can look for shorting opportunities in the banking and metal sectors.

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Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.