Sensex crashes 650 points: Rupee hits record low, major FPI selloff, slowing economic growth

Sensex Tumbles 800 Points, Extends Losing Streak to Four Days: 8 Reasons Behind the Market Meltdown

The Indian stock market witnessed another sharp decline on Monday, January 13, as the Sensex plunged over 800 points in early trade, marking its fourth consecutive day of losses. Investor sentiment took a significant hit, with the overall market capitalisation of BSE-listed companies dropping from ₹430 lakh crore to ₹425 lakh crore, eroding ₹5 lakh crore within just five minutes of trading.

Here's a closer look at the key factors fueling this selloff:

1. Surge in Crude Oil Prices

Crude oil prices reached a three-month high amid concerns over US sanctions targeting Russian oil exports to key importers like India and China. Rising crude prices threaten India's fiscal health as one of the world’s largest oil importers, intensifying inflationary pressures and impacting investor confidence.

2. Rupee Hits Record Low

The Indian rupee depreciated to an all-time low of 86.27 against the US dollar, driven by surging oil prices and a strong dollar index, which reached a two-year high of 109.72. A weaker rupee increases import costs and adds to economic uncertainties.

3. Concerns Over Trump's Trade Policies

With Donald Trump set to assume office next week, speculation about his administration’s protectionist trade policies has created apprehension in global markets. Potential tariff hikes on exports to the US could hurt Indian businesses and dampen sentiment further.

4. Massive FPI Selloff

Foreign portfolio investors (FPIs) have aggressively offloaded Indian equities, selling over ₹21,350 crore in January so far, after withdrawing ₹16,982 crore in December. Rising US bond yields and stretched equity valuations have amplified this trend.

5. Pre-Budget Anxiety

Ahead of the Union Budget 2025, markets remain cautious, with concerns about fiscal discipline and measures to revive consumption. Experts warn that another populist budget may disappoint investors, further impacting the market.

6. Dim Prospects for US Fed Rate Cuts

Expectations of a US Federal Reserve rate cut have faded, following strong economic data from the US. Robust job growth and inflation concerns have kept the Fed cautious, dimming hopes for a rate cut that could have bolstered emerging markets like India.

7. Weak Corporate Earnings

Subdued earnings in Q1 and Q2 have raised concerns about a lackluster Q3 as well. While some sectors may show improvement, a significant recovery is only expected by Q4, keeping market pressure intact for the foreseeable future.

8. Slowing Economic Growth

India’s GDP growth projection for FY2024-25 has been revised to 6.4%, a four-year low. Slowing growth has raised concerns about high valuations, reduced foreign capital inflows, and increased economic vulnerabilities.

The ongoing selloff has particularly impacted midcap and smallcap stocks, with the BSE Midcap and Smallcap indices falling by up to 2%. As global uncertainties and domestic challenges persist, investors are advised to stay cautious and consult financial experts before making investment decisions.

Disclaimer: The above information is for educational purposes only. Please consult a certified financial advisor for investment advice.