The mood on Dalal Street has become increasingly anxious and pessimistic after another substantial stock market crash that saw investors lose nearly Rs 13 lakh crore. At the closing bell on Monday, the Sensex fell sharply by over 1,000 points, a reminder of the volatility the markets are currently experiencing. Meanwhile, the Nifty50 struggled to hold on, barely managing to remain above the critical 23,000 mark, which signals a period of considerable distress for investors.
The Sensex closed the day down by 1,048.90 points, closing at 76,330.01, while the Nifty50 lost 344.20 points, settling at 23,087.30. The market’s breadth reflected the severity of the sell-off, with most heavyweight stocks ending in negative territory, and key sectoral indices posting steep declines. The situation has prompted investors to question whether this is a temporary setback or the onset of a prolonged bear market that could lead to further financial losses. To further illustrate the current market sentiment, both the Sensex and Nifty have already lost more than 2% in the calendar year and more than 7% in just a month. Given the significant drops in major indices, analysts and investors alike are bracing for continued volatility, with some suggesting that the domestic markets may witness further declines in the short term, especially in the lead-up to the 2025 Union Budget and the Q3 corporate earnings reports.
The reasons behind this severe downturn are a complex mix of domestic and global factors that have significantly impacted investor confidence. Prashanth Tapse, Senior Vice President of Research at Mehta Equities Ltd, highlighted the role of global events in shaping the market’s behavior. One such event was the US imposing sanctions on Russian oil exports, which led to a significant depreciation of the Indian rupee against the US dollar. This depreciation, in turn, caused significant ripples in the Indian equity markets, triggering a massive correction. Tapse also pointed out that foreign institutional investors (FIIs) have been pulling out funds from Indian equities, exacerbating the decline. These FIIs, which have historically played a major role in supporting the Indian stock market, have increasingly deserted the local share market, further weakening the sentiment. The widespread sell-off across various sectors, coupled with heavy exits from mid and small-cap stocks, has compounded the negative outlook. The rising crude oil prices, breaching $81 per barrel, have reignited inflationary fears, which could put pressure on domestic prices and delay any rate cut expectations from the Reserve Bank of India (RBI). This, in turn, is adding another layer of uncertainty to the market, making it harder for investors to forecast future trends.
Vinod Nair, Head of Research at Geojit Financial Services, echoed similar concerns regarding the impact of global economic events on India’s markets. He noted that the global sell-off was exacerbated by strong US payroll data, which has led to the anticipation of fewer rate cuts by the Federal Reserve in 2025. This outlook for the US economy has strengthened the dollar, which in turn has driven up bond yields. Rising yields, combined with a stronger dollar, have made emerging markets like India less attractive to foreign investors, contributing to the outflow of capital. Nair also pointed to recent downgrades in GDP growth forecasts and the slowing pace of earnings growth, which has raised concerns about the sustainability of higher valuations in the Indian market. As a result, there is a growing sense of caution among both institutional and retail investors, which could translate into continued volatility in the near term.
Ajit Mishra, Senior Vice President of Research at Religare Broking Ltd, shared insights into the technical aspects of the market’s weakness. The sell-off has been broad-based, with the realty, metal, and energy sectors taking the hardest hits. In addition to this, the broader market indices have also experienced significant losses, with some plunging nearly 4% in a single day. Mishra pointed out that the Nifty had decisively broken below the key support level of 23,263.15, which had served as a critical threshold in November 2024. This technical breakdown, accompanied by a rise in the volatility index, suggests that further downside risks remain. The next significant support level for the Nifty is at 22,700, which could act as a critical juncture for the market. However, Mishra also noted that the market is currently oversold in certain heavyweight stocks, which could lead to brief pauses in the downward trend before any potential recovery.
The persistent rise in global crude oil prices, with Brent crude breaching $81 per barrel, has renewed inflation concerns, further dampening market sentiment. The combination of rising oil prices and fears of inflation has left investors increasingly wary of the broader economic consequences. As Tapse noted, the macroeconomic environment, compounded by persistent foreign outflows, has made it more difficult for Indian equities to attract fresh investments. The outflows from foreign institutional investors (FIIs) have been significant, with over $4 billion pulled from Indian equities this month alone, following a larger outflow of $11 billion in the previous quarter. These outflows are one of the key factors contributing to the pressure on the market, as they reduce liquidity and make the market more susceptible to fluctuations.
Looking ahead, analysts suggest that the market could remain weak until March, with some projecting that stability may return around April. In a recent note, Emkay Global projected a relatively subdued outlook for the Nifty, forecasting a conservative target of 25,000 for 2025. However, they also noted that small and mid-cap stocks might outperform the larger-cap stocks, providing a silver lining for investors looking for opportunities beyond the large-cap index.
Ajit Mishra advised investors to adopt a "sell on the rise" approach for the Nifty index while focusing on risk management strategies. He recommended sectors such as IT, FMCG, and select pharmaceutical stocks, as these have shown relative stability compared to other sectors, which remain under significant pressure. Mishra emphasized the importance of adjusting stock-specific positions according to market conditions, as this would allow investors to better navigate the volatility in the short term.
While the outlook for the stock market remains challenging in the immediate future, analysts are hopeful that conditions could improve as the earnings outlook improves, and foreign institutional selling subsides. If global and domestic economic conditions stabilize in the coming months, there is potential for a market recovery. However, until then, volatility is expected to remain a dominant feature of the Indian stock market landscape. Investors will need to carefully monitor global developments, domestic economic data, policy changes, and market trends to adapt to the evolving situation and make informed investment decisions.
In conclusion, the stock market is facing a challenging period, with a mix of domestic and global factors contributing to the current downturn. While the near-term outlook is fraught with uncertainty, analysts believe that a recovery could materialize as global and domestic economic conditions stabilize. For now, investors are advised to remain cautious, focus on risk management, and be prepared for further volatility before stability returns.
