The Indian stock market took a beating today, with the BSE Sensex plunging over 1,200 points and the NSE Nifty shedding 350 points. Investors lost a staggering ₹7.1 lakh crore as market capitalization on the BSE fell sharply. The selloff reflects deeper worries gnawing at investor confidence, both globally and domestically.
So, what exactly is spooking the markets? Here are five key factors driving the rout:
1. Uncertainty Around Trump’s Trade Policies
Donald Trump’s return to the global stage has reignited concerns about trade protectionism. On his first day back in office, Trump announced tariffs on Canada and Mexico and hinted at potential hikes targeting other countries, including India. The lack of clarity on his broader economic strategy has unnerved markets. His immigration policies could also hit Indian IT firms hard, adding to the gloom.
“Trump 2.0 has started with uncertainty,” says V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services. “While his stance on immigration is clear, his tariff strategy remains vague, leaving global markets anxious.”
2. Budget 2025 Jitters
With the Union Budget just days away, investor nerves are frayed. Finance Minister Nirmala Sitharaman faces the Herculean task of balancing fiscal prudence with the need to boost consumption, rural development, and manufacturing. Any failure to meet market expectations could trigger further selloffs, adding to today’s carnage.
3. Foreign Investor Exodus
Foreign portfolio investors (FPIs) have been fleeing Indian equities at an alarming pace. So far in January, FPIs have offloaded nearly ₹51,000 crore, spurred by the strengthening US dollar and rising global bond yields. This relentless outflow has become a major drag on market sentiment, undermining domestic confidence.
4. Disappointing Corporate Earnings
Indian corporates continue to underwhelm. Weak Q3 results have compounded the poor performance seen in the first two quarters of FY25. Sectors like manufacturing, IT, and consumption have shown mixed trends, leaving investors skeptical about near-term growth.
“Markets track earnings and liquidity,” says Priyanka Khandelwal, a fund manager at ICICI Prudential AMC. “And corporate earnings have been consistently weak, which has weighed heavily on sentiment.”
5. Weakening Macroeconomic Indicators
The broader economy isn’t helping matters. Sluggish private capital expenditure, slowing government spending, and muted demand growth have dampened hopes of a robust recovery. Non-farm employment has also taken a hit, signaling deeper structural issues that policy interventions have yet to resolve.
While the fundamentals of the Indian economy remain intact, the combination of global headwinds and domestic challenges has created a perfect storm. Markets thrive on certainty and optimism, both of which are in short supply right now.
With the Budget around the corner and geopolitical uncertainties looming large, the road ahead for Indian equities looks bumpy. Investors will need to brace themselves for more turbulence before stability returns.