Indian equity markets witnessed a sharp decline on January 6, with the market capitalisation erosion exceeding Rs 9.5 lakh crore — the steepest single-day fall in three months. The benchmark indices Sensex and Nifty dropped over 1.5% amid rising investor concerns.
Among broader indices, BSE MidCap and Smallcap declined over 2 percent each while BSE SME IPO index lost 1.5 percent.
Key factors on why Indian markets are falling:
HMPV cases in focus: The decline in markets coincided with news of two confirmed cases of Human Metapneumovirus (HMPV) in Karnataka, detected during routine surveillance. The Indian Ministry of Health emphasised that HMPV is not a new virus and has been circulating globally, including in India, with no unusual surge in influenza-like illnesses reported domestically.
Globally, China is grappling with a surge in HMPV cases, raising alarm over respiratory illnesses. Malaysia has also reported a significant increase in HMPV infections in recent months, while Hong Kong has seen fewer cases.
Asian markets data: Asian markets await critical economic data this week, with China’s December inflation figures drawing particular attention as they could shape expectations for additional stimulus measures.
Weak sentiments from US: Investor sentiment was further dampened by cautious comments from US Federal Reserve officials. San Francisco Fed President Mary Daly and Fed Governor Adriana Kugler reiterated the need to prioritise achieving the Fed’s 2% inflation target before easing interest rates. Fed Chair Jerome Powell’s remarks last month suggested a more measured approach to reducing borrowing costs.
Key US economic indicators, including nonfarm payrolls, job openings, and the minutes of the Fed’s December meeting, will be closely monitored this week.
Q3 earnings jitters: Market participants are keenly focused on December quarter (Q3) earnings, particularly following weaker results in Q2. The sharp market surge since the beginning of 2023 has raised questions about whether current stock valuations are supported by underlying earnings performance.
Banking stocks under pressure: Indian banking stocks led the market decline, with HDFC Bank and Axis Bank posting significant losses. HDFC Bank fell as much as 2.1% after reporting slower loan growth of 3% year-on-year for the December quarter, compared to 7% in the previous quarter. ICICI Bank (-0.3%), Axis Bank (-1.8%), SBI (-1.9%), IndusInd Bank (-2.6%), and Federal Bank (-3.2%) also experienced declines.
According to Jefferies, HDFC Bank’s slower loan growth missed expectations, reflecting efforts to reduce its loans-to-deposit ratio, sell-down assets, and repay borrowings. Citi analysts echoed these sentiments, highlighting management's strategic adjustments.
Continued foreign outflows: Foreign Institutional Investors (FIIs) extended their sell-off in Indian markets, with provisional outflows exceeding Rs 7,000 crore in 2025 so far. Despite net buying of Rs 15,446 crore in December, FIIs remained net sellers in secondary markets, offloading over Rs10,000 crore. October and November also saw significant outflows of Rs94,000 crore and Rs21,612 crore, respectively.
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