Markets snap 3-day rally ahead of Budget: Sensex settles 300 pts lower, Nifty ends below 25,350; key factors behind decline

Stock market today news: Sensex, Nifty see profit booking in trade.

• Sensex and Nifty drop sharply after three-day rally, led by IT and metal stocks.
• Market sentiment hit by FII selling, rising crude prices, and weak global cues.
• Caution ahead of Union Budget; India VIX rises, signaling increased volatility.

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The benchmark equity indices Sensex and Nifty fell sharply on Friday after a three-day rally, weighed down by selling in IT and metal stocks, weak global cues and caution ahead of the Union Budget to be presented on February 1.

Fresh foreign fund outflows and subdued trends in overseas markets further dented investor sentiment.

The Sensex settled 296.59 points or 0.36 percent lower at 82,269.78, while the broader Nifty declined to 25,320.65, down 98.25 points or 0.39 percent.

Hindalco Industries, Tata Steel and Coal India were among the major laggards in the Nifty50 pack, declining up to 6 percent, while Apollo Hospitals Enterprise and Tata Consumer Products were among the top gainers, risnig up to 2 percent.

Key factors behind market decline

1) Profit booking in metal shares: Metal shares were among the biggest laggards, with the Nifty Metal index declining up to 4 percent, retreating from the gains of the past three sessions. The sector had risen sharply earlier on higher base metal prices amid geopolitical concerns.

Tim Waterer, Chief Market Analyst at KCM Trade, said a potentially less dovish Federal Reserve chair, a rebound in the dollar and overbought conditions had contributed to the decline in metal prices.

2) Renewed FII selling: Investor sentiment was also hit by renewed selling by foreign institutional investors (FIIs) after a brief pause on Wednesday. FIIs have remained net sellers for most of January so far, turning net buyers in only two sessions during the month.

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3) Rise in crude prices: Crude oil prices added to the pressure, rising to a five-month high on Thursday amid concerns over possible supply disruptions if the US attacks Iran, a major OPEC producer. Higher oil prices are a negative for India, which is a net importer of crude.

"The spike in Brent crude to near USD 70 is a headwind for Indian macros in general and for industries that use oil as an input," said VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited.

4) Caution ahead of union budget: Markets also remained cautious ahead of the Union Budget, which Finance Minister Nirmala Sitharaman is scheduled to present in Parliament on Sunday. The stock markets will operate in a special trading session on Budget day.

"As we near Budget day, there are both headwinds and tailwinds for the market. Geopolitical issues continue to plague global trade, with persistent threats of tariff weaponisation," Vijayakumar said.

5) Weak global cues: In Asian markets, Japan’s Nikkei 225, China’s Shanghai Composite and Hong Kong’s Hang Seng were quoting lower. US markets ended mostly in the red on Thursday.

6) Rise in India Vix: The India VIX, which measures market volatility and reflects investor fear, rose nearly 4 percent to 13.85, indicating increased uncertainty in the near term.

7) Sellingin IT shares: IT stocks also came under pressure, with the sector declining up to 2 percent, tracking a sharp overnight sell-off in the Nasdaq.

8) Fears of Hawkish Fed chair: Gold prices slid more than 4 percent amid speculation that the US Federal Reserve could get a more hawkish chair. US President Donald Trump said he would announce his pick to replace Fed Chair Jerome Powell on Friday. A more hawkish stance by the Fed typically strengthens the dollar and tightens global liquidity, which can weigh on emerging markets like India.

"Rumours that Kevin Warsh will replace Jerome Powell as Fed chair have weighed on gold during Asian trade," said Matt Simpson, Senior Analyst at StoneX.

Technical outlook

Anand James, Chief Market Strategist at Geojit Investments, said the 25,180 level had earlier provided support, allowing the market to rebound.

"However, the consolidation seen after moving past 25,400 warrants caution. Inability to sustain above the 25,390–25,360 region could weaken the upside momentum, at least for today," he said.

(With inputs from Reuters)

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