The Sensex dropped over 800 points today, marking its fourth consecutive day of losses. Here are 5 factors contributing to the sharp fall on D-Street.

The Indian stock market continued its sharp decline on Monday, January 13, for the fourth day in a row, due to rising crude oil prices, a weakening rupee, and large foreign capital outflows.

The Sensex opened at 76,629.90, down from 77,378.91, and fell over 800 points, hitting a low of 76,535.24. The Nifty 50 opened at 23,195.40, down from 23,431.50, and dropped over 250 points. The selloff was especially strong in the mid and small-cap sectors, with both BSE Midcap and Smallcap indices falling by up to 2%.

BSE-listed firms total market value fell by ₹5 lakh crore, reaching ₹425 lakh crore, and investors lost ₹17 lakh crore over the past four sessions.

Why Indian Stock Market is Falling? 5 Factors

1. Oil Prices Surge

• Oil prices hit a three-month high on Monday.
  
• The rise is driven by expectations that US sanctions will impact Russian crude supplies to major importers like China and India.
  
• The US imposed broad sanctions on Russia’s oil and gas revenues to help negotiate peace in Ukraine.
  
• Rising oil prices negatively affect India, a large oil importer, worsening fiscal health.Higher oil prices increase inflation concerns, slow economic growth, and hurt investor sentiment.
  
• The surge in oil prices also puts pressure on the rupee and leads to more foreign capital outflows.

2. Rupee Hits Fresh Lows

• The Indian rupee fell by 23 paise, reaching a record low of 86.27 against the US dollar on Monday.
  
• The decline was driven by rising crude oil prices and a stronger US dollar.
  
• The US dollar remained near a 14-month high after a strong US payroll report on Friday.
  
• The dollar index, which measures the US dollar’s strength against six other currencies, rose 0.22%, reaching its highest level in over two years at 109.72.
  
• The 10-year US bond yield also remained high, touching 4.76%, its highest since October 2023.

3. Uncertainty Over Trump’s Trade Policies

• Donald Trump will take office on January 20, raising concerns about potential trade policy changes.
  
• Speculation suggests Trump may impose higher tariffs on countries, including India, which could negatively affect market sentiment.
  
• A second Trump term could reshape Asia’s economy, especially with increased trade protectionism.
  
• While Southeast Asia and emerging markets may see new opportunities, export-driven economies and industries relying on international talent could face risks.
  
• Ross Maxwell, Global Strategy Operations Lead at VT Markets, highlighted these potential shifts in the economic landscape.

4. Massive Selling by FPIs

• Foreign Portfolio Investors (FPIs) have sold over ₹21,350 crore worth of Indian equities in January (till January 10), following a ₹16,982 crore selloff in December.
  
• FPIs have been in a selling trend since October 2023, with ₹1,14,445 crore sold in October and ₹45,974 crore in November.
  
• The sharp selloff is driven by rising US bond yields, a stronger US dollar, and reduced expectations of a US Federal Reserve rate cut this year.
  
• Additionally, stretched valuations of Indian equities and disappointing quarterly earnings have added to foreign investors’ concerns.

5. Caution Ahead of Budget 2025

• Market volatility has led to increased focus on the upcoming Union Budget 2025.
  
• Experts expect the government to focus on fiscal prudence, with measures to boost consumption and support growth.
  
• However, if the Budget remains populist like the previous one, it could disappoint markets and lead to further declines.
  
• Divam Sharma, co-founder of Green Portfolio, suggests that after a populist budget last year, a moderate approach might be expected, especially to address low consumption, particularly in rural areas.

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