With Sensex crashing over 1,000 points and Nifty falling 1.5 percent today, the Indian equity markets are likely to remain under pressure in the near term. Global headwinds, including a strong dollar and elevated crude oil prices, as well as domestic concerns over stretched valuations and weak earnings expectations will likely continue to weigh. Analysts expect heightened volatility ahead of key triggers such as the Union Budget, corporate earnings, and global inflation data.
The BSE Sensex plunged 1,049 points, or 1.4 percent, to close at 76,330 on Monday, while the NSE Nifty fell 346 points to settle at 23,086. This marked the fourth straight session of losses, dragging the Nifty to its lowest level in seven months. Broader indices bore the brunt, with mid- and small-cap stocks losing over 4 percent each, eroding more than Rs 12.39 lakh crore in market capitalisation.
Why markets fell today
The selloff was triggered by global factors, including stronger-than-expected US jobs data released last Friday, which dashed hopes of early rate cuts by the Federal Reserve. This sent US bond yields and the dollar index soaring, putting pressure on emerging markets like India. Crude oil prices surged to 15-week highs, driven by fresh US sanctions on Russian oil, adding to inflationary concerns.
On the domestic front, the Indian rupee weakened to a record low of Rs 86.59 against the dollar, while the 10-year bond yield rose 7 basis points to 6.85 percent. The negative sentiment was intensified by sustained foreign portfolio investor (FPI) selling. FIIs net sold another Rs 4,900 crore in Indian equities today, adding to Rs 20,000 crore so far in January.
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What’s next for Sensex, Nifty?
Global cues to dominate near term: Market participants expect global factors to remain the primary drivers in the coming days. The focus will be on the US Producer Price Index (PPI) data, scheduled to be released tomorrow, which could influence Federal Reserve policy expectations. "Globally, markets are adjusting to the prospect of fewer or no rate cuts in 2025, with US economic momentum remaining strong," said Satish Chandra Aluri of Lemonn Markets Desk.
Domestic triggers | Budget and earnings season: On the domestic front, the upcoming Union Budget and Q3 corporate earnings season will be critical. “Recent GDP downgrades and slowing earnings amidst higher valuations are weighing heavily on sentiment. The Budget, RBI policy, and Q3 results will define the short-term trend,” said Vinod Nair, Head of Research at Geojit Financial Services.
Technical outlook | Sell on rise: The Nifty’s close below key support levels, including the November 2024 low of 23,263, signals further downside risk. Analysts expect the index to test 22,900–22,800 in the near term, with immediate resistance at 23,260. “The trend remains weak, and a sell-on-rise strategy is advisable,” said Hrishikesh Yedve, AVP – Derivatives Research, Asit C Mehta Investment Intermediates.
Bank Nifty is also under pressure, having closed below its 250-day simple moving average (DSMA) at 48,041. Analysts caution that the index could slip to its next key support at 47,300.
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Broader markets under stress: Mid- and small-cap indices have been hit harder, with the Nifty Smallcap 100 plunging 10 percent over the past four sessions. From its December 2024 all-time high, the Smallcap 100 index has lost 15 percent in just 22 trading sessions. "This extreme pessimism reflects broader market concerns around stretched valuations and weak earnings expectations," said Nandish Shah, Deputy VP, HDFC Securities.
Sectoral outlook | IT and pharma resilient: While the selloff has been broad-based, some resilience has been observed in IT, FMCG, and select pharma stocks. In contrast, realty, metals, consumer durables, and media stocks have faced the brunt of the correction.
Investors’ strategy: Caution and selectivity
Analysts recommend a cautious approach amid heightened volatility, with a 7.25 percent rise in the India VIX to 16 today. “Participants should focus on risk management and stock-specific opportunities in relatively stable sectors like IT and pharma while avoiding overexposure to high-beta segments,” said Ajit Mishra, SVP, Research, Religare Broking Ltd.
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