Stock Market on January 27: Sensex Plunges Over 800 Points, Key Reasons Behind the Market Crash Today

The Indian stock market faced a significant downturn during the morning trade on Monday, January 27, with the benchmark indices Sensex and Nifty 50 witnessing sharp declines. The Sensex tumbled over 800 points, while the Nifty 50 fell to levels near 22,800. A broad-based selloff across sectors further amplified the losses, with midcap and smallcap segments taking a severe hit. The BSE Midcap index fell by 3%, and the Smallcap index plunged over 4% during the session. Consequently, the overall market capitalisation (m-cap) of BSE-listed firms dropped to below ₹410 lakh crore from ₹419.5 lakh crore in the previous session, marking an investor wealth erosion of nearly ₹10 lakh crore in a single day.

Key Factors Behind the Market Selloff

1. Budget 2025 in Focus

The upcoming Budget 2025 has become a critical point of focus for investors. The government is expected to strike a balance between fiscal prudence and measures to boost consumption. However, concerns over a potentially populist budget are dampening market sentiment.

“A populist budget may strain the fiscal deficit and lead to further rupee depreciation. This could delay economic growth and limit the scope for rate cuts,” said Deepak Ramaraju, Senior Fund Manager at Shriram AMC. Any deviation from fiscal discipline or lower growth guidance is likely to trigger further market selloffs.

2. Weak Q3 Earnings

The December quarter (Q3) earnings of Indian corporates have failed to meet expectations, undermining investor confidence. A slower-than-expected recovery across several sectors, coupled with already stretched valuations and global uncertainties, has added to the bearish sentiment.

3. Massive Foreign Capital Outflows

Foreign portfolio investors (FPIs) have been consistently pulling out funds from Indian equities since October last year, withdrawing approximately ₹2.5 lakh crore. In January alone, FPIs offloaded over ₹69,000 crore in Indian stocks as of January 24.

“The persistent FPI selling is driven by currency depreciation, rising crude oil prices, and the US Fed’s reluctance to reduce interest rates. FPIs are opting for risk-free returns of 5.5% to 6% from US Treasury bonds, which makes India less attractive for investments,” explained Devang Kabra, Co-Fund Manager at Wallfort PMS.

4. The US Fed Factor

The US Federal Open Market Committee (FOMC) is set to meet on January 28-29. While the US Fed cut interest rates by a full percentage point in 2024, many analysts believe the rate-cutting cycle may have ended. Strong macroeconomic data and cautious policymaking are expected to lead to a status quo on rates in January, adding to global market uncertainty.

5. Concerns Over Trump's Tariff Policies

Global markets are closely watching former US President Donald Trump’s tariff policies. Trump’s recent threats to impose a 25% tariff on Colombia for not accepting deported illegal immigrants have raised alarms. Additionally, the tariffs on Canada and Mexico, set to be implemented from February 1, are causing further concerns.

“The possibility of Trump’s other tariff threats, including those on China and other countries, materializing is a significant worry. Such policies add to global economic uncertainty and weigh heavily on market sentiment,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

As the markets grapple with these headwinds, investors remain cautious about the near-term trajectory. Factors such as the direction of the upcoming Budget, corporate earnings, foreign capital flows, and global geopolitical developments will play a crucial role in shaping market sentiment in the weeks ahead.

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