Sensex crashes 800 pts, Nifty hits 7-month low in broad-based selling; volatility spikes 8%

In a note dated January 21, brokerage firm InCred Equities lowered its target for the Nifty 50 index by 8 percent, revising it to 23,260 from the earlier projection of 25,120.

Sensex and Nifty entered the January series expiry week on shaky ground, weighed down by a cocktail of factors—weak global cues, disappointing Q3 earnings, U.S. trade policy uncertainty, and foreign outflows. Reflecting this nervousness, the India VIX, a gauge of market volatility, surged over 8 percent.

At close, the Sensex was down 824 points or 1 percent at 75,366, and the Nifty was down 275 points or 1.2 percent at 22,817. About 542 shares advanced, 3,398 shares declined, and 115 shares were unchanged. Nifty plunged below 22,800 for the first time since June 2024.

The carnage wasn't confined to the frontline indices. The broader market took a severe hit, with midcap and smallcap indexes plunged 2-4 percent, eroding over Rs 9 lakh crore of investor wealth.

All 13 sectoral indices ended in the red with Nifty Energy, IT, Metal, Media, Oil & Gas, and Pharma bearing the brunt, tumbling 2-5 percent.

All eyes are now on two pivotal events—the Union Budget on February 1 and the U.S. Federal Reserve's rate decision on January 29—that will set the tone for markets in this six-day trading week.

"Both the near-term and medium-term trends are negative for the market," said Rachana Vaidya, SEBI Registered Research Analyst at rachanavaidya.in. "A downtrend respects no support, just as an uptrend respects no resistance. When psychological support levels like 23,000 emerge, the market may consolidate briefly, giving rise to a relief rally. However, these rallies often fail as fresh short positions emerge at higher levels, pushing the market lower again," she explained.

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Vaidya identified a long-term support level for the Nifty at 21,800, warning that short-term supports, like 23,000, are unlikely to hold in this environment.

Adding to the market's woes, Nasdaq futures were down 750 points or 3.4 percent as global investors assessed the implications of Chinese startup DeepSeek's launch of a free, open-source AI model, poised to rival OpenAI's ChatGPT.

"In the US, the IT sector, particularly, has been doing well. But Nasdaq has delivered strong returns, and valuations are no longer cheap. At higher valuations, even sentimental news, like the introduction of a potential competitor, can negatively impact stocks," Anita Gandhi, Whole Time Director of Arihant Capital Markets told Moneycontrol.

The ongoing earnings season continues to steer market sentiment, with results so far skewing negative. Several companies have fallen short of expectations, dampening investor confidence.

Adding to the unease is the unpredictability surrounding U.S.-India relations.  "Uncertainty around the trajectory of U.S.-India relations under Trump's presidency is adding to investor anxiety. While some announcements have been made, Trump's unpredictability could spark further volatility," Ambareesh Baliga, an independent market analyst told Moneycontrol.

Also Read | Nifty Smallcap 100 index down 4%, extends monthly fall to worst since March 2020

In a note dated January 21, brokerage firm InCred Equities lowered its target for the Nifty 50 index by 8 percent, revising it to 23,260 from the earlier projection of 25,120. In a bearish scenario, InCred envisions the Nifty plunging to 21,016, citing a combination of unfavourable factors such as GDP growth falling below 6 percent, a fragile coalition government, Brent Crude prices exceeding $100 per barrel, inflation breaching 6 percent, uneven monsoon distribution, and heightened tariff barriers impacting exports. The brokerage has also raised the probability of this bear case to 40 percent, up from 35 percent previously.

Shares of Laurus Labs plunged 11.6 percent as Donald Trump's withdrawal from the WHO and halting emergency funding programs raised fears of a hit to its Anti-Retroviral (ARV) business, which accounts for nearly half of its revenue.

Meanwhile, CDSL shares tumbled 10 percent following a weak sequential quarterly performance, adding to the broader market's woes.

Bucking the trend, private lender ICICI Bank rose over 1 percent after reporting higher quarterly profits, supported by robust loan growth, even as lending margins faced some pressure.

Tech Mahindra, HCLTech, Hindalco, Wipro, and Shriram Finance were among the biggest losers on the Nifty, shedding 3-5 percent. Meanwhile, Britannia, ICICI Bank, SBI, HUL, and M&M managed to eke out gains of over 1 percent each, providing some relief amid the sell-off.

India's benchmark indices had wrapped up the previous week with their third straight weekly loss. Foreign portfolio investors (FPIs) have been net sellers, pulling out a staggering Rs 69,080 crore from Indian equities in January alone.

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