Bears firmly took control of Dalal Street as the Indian stock market witnessed another turbulent session, marked by significant losses. The benchmark indices continued their downward trajectory, reflecting the prevailing weakness in investor sentiment across multiple sectors. The S&P BSE Sensex plunged by over 800 points, reaching a low of 75,348.06, while the NSE Nifty Index fell below the crucial 23,000 mark, signaling widespread caution among market participants.
The Sensex opened at 75,700.43, after having closed the previous session at 76,190.46. By 10:35 AM, the S&P BSE Sensex had declined by 818.36 points to 75,372.10, while the NSE Nifty50 dropped by 257.35 points to 22,834.85. The extent of the fall reflected a confluence of global and domestic factors that weighed heavily on market sentiment and led to significant selling pressure.
The most pronounced weakness was observed in sectors like Information Technology (IT) and metals, with these stocks experiencing considerable selling pressure. Additionally, mid-cap and small-cap stocks also faced significant declines, reflecting broader risk aversion. Analysts attribute the downturn to a mixture of persistent foreign portfolio investor (FPI) selling, global economic uncertainties, and domestic concerns that have eroded investor confidence.
Foreign Portfolio Investor (FPI) Selling Pressure: A Key Factor
One of the primary catalysts for today's market fall is the ongoing and substantial selling pressure from FPIs. In the month of January alone, FPIs have withdrawn approximately Rs 69,000 crore from the Indian stock market. This persistent outflow has more than offset the Rs 67,000 crore worth of investments made by domestic institutional investors (DIIs) during the same period. The continuous FPI selling has created an imbalance in the market, putting downward pressure on the indices despite strong buying support from domestic investors.
Kranthi Bathini, an equity strategist at WealthMills Securities, noted, “Nifty is now trading below the critical 23,000 level, and when it falls below such key levels, it often triggers panic selling and intensifies the downward momentum. The visible pressure on mid-cap and small-cap stocks is a clear indication of investors becoming increasingly cautious. With the Union Budget and the Reserve Bank of India’s monetary policy decision on the horizon, caution is dominating market sentiment.”
Global Economic Uncertainty and Trade Tensions: Amplifying the Downturn
Global factors are also playing a significant role in dampening market sentiment. Investors are closely watching the upcoming US Federal Reserve monetary policy decision, with concerns that further tightening of liquidity could occur. Additionally, rising trade tensions globally are adding to the uncertainty.
Recently, fresh fears have emerged about the US potentially imposing a 25% tariff on Colombia for its refusal to accept deported illegal immigrants. Similar threats of tariffs on Canada and Mexico have also heightened concerns about the future stability of global trade. These developments have created an atmosphere of volatility in both economic and market circles, leading to increased risk aversion among investors.
Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, commented, “Sustained FPI selling is certainly impacting market sentiment. Alongside this, global uncertainties related to new tariffs and escalating trade tensions are weighing heavily on investor confidence. Markets are hoping for fiscal stimulus through measures like income tax cuts in the upcoming Budget. If those expectations are unmet, we could see the market continuing to struggle.”
Profit Booking and Anticipation Around Union Budget 2025
Another key reason contributing to the market's decline is profit booking by investors in anticipation of the Union Budget 2025. With the Budget set to be announced on Saturday, there are widespread hopes that the government will introduce fiscal measures such as income tax cuts or other incentives to stimulate economic growth. However, the uncertainty surrounding these expectations is adding further volatility to the markets.
Trivesh, Chief Operating Officer at Tradejini, explained, “The market is nervous due to tightening global liquidity, along with the upcoming Union Budget. Profit booking ahead of the Budget is putting additional pressure on the market. On top of that, quarterly earnings have been weaker than expected, which only adds to the general sense of weakness in the market. Capital flight has been exacerbated by global risk aversion, and concerns about slowing demand have led to further pressure on crude oil prices.”
Concerns Over China's Technological Advancements and the Global Competition
The growing influence of China’s DeepSeek AI technology has raised concerns about intensifying competition in the global tech sector. The rapid development of advanced artificial intelligence tools and technology in China has spooked investors, particularly in the Information Technology sector. This has compounded the cautious sentiment in the market, with investors fearing that the competition from China may diminish growth prospects for Indian IT firms. Consequently, tech stocks have come under significant pressure, adding to the broader market weakness.
Meanwhile, while crude oil prices have been under pressure due to concerns over slowing global demand, this has not been enough to offset the bearish sentiment across equities. Despite the decline in oil prices, the broader economic outlook remains uncertain, and this uncertainty has contributed to the downward trajectory in the stock markets.
Market Outlook: High Volatility and Key Events Ahead
Looking ahead, the market is likely to remain highly volatile, with investors on edge as they await the resolution of key global and domestic events. The Union Budget, set for announcement this Saturday, will be a pivotal moment for market sentiment. Investors are hoping for fiscal measures such as tax cuts or economic incentives that could help stimulate growth and reverse the current downtrend. The Reserve Bank of India’s monetary policy decision in early February will also be closely monitored, as any changes in interest rates or liquidity could significantly impact market movements.
Experts suggest that any disappointment in Budget announcements, such as a lack of expected tax cuts or growth-oriented measures, could lead to additional selling pressure and further declines in the indices. Conversely, if the government introduces robust fiscal measures, there could be a potential relief rally, although the market's overall sentiment is expected to remain cautious until clearer signs of economic recovery and earnings revival emerge.
