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The Indian stock market experienced a significant downturn, with the Sensex plummeting 800 points and the Nifty falling below the crucial 22,850 mark. This sharp decline, occurring during the January series expiry week, was attributed to a confluence of negative factors, including weak global cues, disappointing Q3 earnings from several companies, uncertainty surrounding US trade policy, and substantial foreign outflows. The India VIX, a key indicator of market volatility, surged by 10 percent, reflecting the heightened nervousness among investors. This wasn't limited to the major indices; the broader market suffered considerably, with midcap and smallcap indexes plunging by as much as 4 percent, resulting in a massive erosion of investor wealth exceeding Rs 9 lakh crore. All 13 sectoral indices closed in negative territory, with Nifty Energy, IT, Metal, Media, and Pharma sectors bearing the brunt of the sell-off, experiencing declines ranging from 2 to 4 percent.
Adding to the bearish sentiment was a downward revision of the Nifty 50 index target by InCred Equities. The brokerage firm lowered its projection by 8 percent to 23,260 from the previous estimate of 25,120. In a more pessimistic scenario, InCred anticipates the Nifty index to fall as low as 21,016, citing factors such as GDP growth potentially falling below 6 percent, a fragile coalition government, Brent Crude prices exceeding $100 per barrel, inflation exceeding 6 percent, uneven monsoon distribution, and increased tariff barriers negatively impacting exports. The probability of this bearish scenario was raised to 40 percent, compared to the previous estimate of 35 percent. This pessimistic outlook reflects the growing concern among analysts about the potential for a prolonged downturn in the Indian market.
The current earnings season has further exacerbated market anxieties. Several companies have reported disappointing results, falling short of expectations and eroding investor confidence. This, coupled with the ongoing uncertainty surrounding US-India relations under the Trump administration, has added to the overall market volatility. The unpredictability of US policies is contributing to investor anxiety, as highlighted by market analyst Ambareesh Baliga. The decline in Nasdaq futures, down over 500 points or 2.5 percent, also reflects the broader global market sentiment. This drop was partly attributed to the launch of a free, open-source AI model by Chinese startup DeepSeek, posing a potential challenge to OpenAI's ChatGPT and raising concerns about valuations in the US tech sector, particularly given the strong returns and potentially inflated valuations of some companies in the sector.
Individual stock performances mirrored the overall market trend. Shares of CreditAccess Grameen plummeted 6 percent after a further reduction in its full-year guidance, deepening investor concerns. Laurus Labs experienced an even sharper decline of 12 percent due to fears of a negative impact on its ARV business following Donald Trump's withdrawal from the WHO and halting of emergency funding programs. CDSL shares also tumbled 9 percent due to a weak sequential quarterly performance. While some stocks like Britannia, ICICI Bank, SBI, HUL, and M&M managed modest gains, the majority of the Nifty’s constituents, including Tech Mahindra, HCLTech, Power Grid, and Wipro, experienced significant losses ranging from 2 to 3 percent. The continuous net selling by Foreign Portfolio Investors (FPIs), who withdrew a staggering Rs 69,080 crore from Indian equities in January alone, further contributed to the market's negative momentum. The market is now keenly awaiting the upcoming Union Budget on February 1 and the US Federal Reserve's rate decision on January 29, which are expected to significantly influence market sentiment in the coming days.
Analysts such as Rachana Vaidya have expressed a bearish outlook on both the near-term and medium-term trends. She pointed out that downtrends often disregard support levels, and while temporary relief rallies might occur around psychological support levels like 23,000, these are unlikely to be sustained in the current environment. She identified a long-term support level for the Nifty at 21,800, suggesting that the current downward trend may continue until that level is reached. The overall situation reflects a complex interplay of domestic and global factors impacting investor sentiment. The combination of disappointing earnings, geopolitical uncertainties, and macroeconomic headwinds paints a challenging picture for the Indian stock market in the near future. The upcoming budget and Fed decision will be critical in determining the market’s direction, potentially offering some clarity amidst the current volatility.