The stock markets slipped sharply on Friday, January 23, as investors booked profits amid global uncertainty, a weak rupee, heavy foreign selling and caution ahead of the Union Budget.
After a brief recovery in the previous session, the benchmarks resumed their downward trend.
The Sensex crashed 770 points, or 0.94%, to close at 81,537.70, while the Nifty 50 dropped 241 points, or 0.95%, to settle at 25,048.65. The BSE Midcap and Smallcap indices dropped by 1.6% and 2.2%, respectively.
The selling was widespread. Mid and small-cap stocks came under heavier pressure, with the BSE Midcap and Smallcap indices falling by up to 2 percent.
The sharp fall wiped out nearly ₹6 lakh crore of investor wealth in a single session. The total market capitalisation of BSE-listed companies fell to about ₹452.5 lakh crore from ₹458.5 lakh crore in the previous session.
Below are the key reasons behind the market fall.
Markets remain nervous due to lingering geopolitical concerns. While tensions between the US and Europe over Greenland appear to be easing, there is still no clarity on the so-called deal between the US and NATO.
The US President claimed to have secured permanent access to Greenland through an agreement with NATO. However, details remain unclear, and Greenland’s prime minister has said he lacks information on many aspects of the deal. This lack of clarity is keeping investors cautious and risk-averse.
The rupee weakened further and hit a record low of 91.99 against the dollar during intraday trade, adding pressure on equities.
A falling rupee hurts market sentiment, especially in a period of global uncertainty. After declining about 5 percent last year, the rupee has already fallen more than 2 percent so far this year.
Foreign institutional investors continue to sell Indian equities aggressively. So far in January, FIIs have sold shares worth more than ₹36,500 crore in the cash market.
Market experts say weak earnings visibility and global risk aversion are pushing foreign investors to stay cautious.
VK Vijayakumar of Geojit Investments said FIIs are increasing short positions on every small market rebound, limiting the chances of a sustained rally.
Investors are also staying on the sidelines ahead of the Union Budget. Markets are hoping for growth-supportive steps such as higher infrastructure spending, job creation measures and rationalisation of long-term capital gains tax.
However, there are concerns that the government may have limited room to boost spending, given the already high capital expenditure base and the focus on fiscal discipline.
Analysts expect only a modest increase in capex and do not foresee strong measures to revive consumption.
Corporate earnings for the December quarter have been mixed. While there have been no major negative shocks apart from one-time costs linked to new labour codes, profit growth has remained weak.
Early results show the slowest profit growth in at least three years, even though revenue growth has improved. This has failed to lift investor confidence at a time when global markets remain volatile.
Overall, the combination of global uncertainty, currency weakness, foreign selling, Budget-related caution and lacklustre earnings is keeping Indian markets under pressure in the short term.
(By arrangement with livemint.com)