Sensex, Nifty 50 fall for third consecutive session. What is driving Indian stock market down? Explained with 5 factors

Stock market today: Falling for the third consecutive session, Indian stock market benchmarks - the Sensex and the Nifty 50- declined over half a per cent each in intraday trade on Friday, January 10, amid weak global cues, rising US dollar and bond yields.

Sensex opened at 77,682.59 against its previous close of 77,620.21 and dropped over 500 points, or 0.70 per cent, to the intraday low of 77,099.55. The index finally closed 241 points, or 0.31 per cent, lower at 77,378.91.

The Nifty 50 opened at 23,551.90 against its previous close of 23,526.50 and declined over 180 points, or 0.80 per cent, to 23,344.35. The index ended with a loss of 95 points, or 0.40 per cent, at 23,431.50.

The selloff was more intense in the mid and small-cap segments. The BSE Midcap and Smalllcap indices plunged 2.13 per cent and 2.40 per cent, respectively.

The Sensex has dropped 1 per cent, while the Nifty 50 has fallen 1.2 per cent in the last three sessions. The BSE Midcap index has fallen 4.13 per cent, while the BSE Smallcap index has lost 4.6 per cent. Investors have lost nearly ₹12 lakh crore in these three days as the overall market capitalisation of BSE-listed firms has dropped to below ₹430 lakh crore from nearly ₹442 lakh crore on January 7.

"The recent fall in the Indian stock market can be attributed to several interconnected factors. Some of them include the significant outflow of foreign capital from Indian markets, the emergence of the HMPV virus and the Indian rupee's fall against the US dollar. Additionally, weakness in Asian markets has compounded the negative outlook for Indian equities overall," said Atul Parakh, CEO of Bigul.

Sectoral indices today

Most sectoral indices suffered significant losses, except for the Nifty IT index which jumped 3.44 per cent due to a healthy Q3 result of heavyweight TCS.

Among the losers, Nifty Media (down 3.59 per cent), Realty (down 2.77 per cent), PSU Bank (down 2.72 per cent), Healthcare (down 2.21 per cent), Pharma (down 2.13 per cent), Consumer Durables (down 1.80 per cent), Private Bank (down 1.74 per cent) and Metal (down 1.62 per cent) lost 2-4 per cent.

Why is the Indian stock market falling?

Here are the five crucial factors, according to experts, that are driving the Indian stock market down. Let's take a look:

1. Q3 earnings in focus

Traders and investors are cautious ahead of the December quarter earnings. India's IT bellwether Tata Consultancy Services (TCS) reported its December quarter (Q3) numbers on Thursday, January 9, which were largely in line with market expectations.

“Since the results season has started, the market will witness lots of stock-specific action in response to the results. Results of TCS indicate that the IT sector will continue to remain resilient. Results of banking majors will be good, but in the context of FII selling, the sector may not perform in response to the results,” said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

2. Rising US bond yields, dollar

US benchmark 10-year bond yields and the dollar have been rising in light of strong US macro data and waning prospects of a significant rate cut by the US Fed this year. US treasury yields were near eight-month highs on Friday. 

This has been a major negative for emerging markets like India as elevated bond yields and a strong dollar trigger foreign capital outflow.

3. Heavy selling by FPIs

Till January 9, FPIs (foreign portfolio investors) have sold off Indian equities worth over ₹19,000 crore. This trend may continue due to uncertainty surrounding President-elect Donald Trump's trade policies and the US Federal Reserve's interest rate path.

4. Macro jitters

Concerns over Indian economic growth losing steam appear to weigh investors' risk appetite.

As Mint reported, India's gross domestic product (GDP) is expected to grow by 6.4 per cent in the financial year 2024-25, according to the Ministry of Statistics & Programme Implementation's (MoSPI) official release on Tuesday, January 7. This marks a four-year low and a fall from its 8.2 per cent growth in the financial year 2024-25.

Slowing growth has raised concerns about downgrades, further accelerating the fall in the Indian currency and the outflow of foreign capital.

Meanwhile, media reports suggested that the global financial services firm HSBC has downgraded Indian equities from 'neutral' to 'overweight' amid concerns over high valuations and slowing growth momentum.

5. Uncertainty surrounding Fed's policy, Trump's tariff moves

The recent strong US macro data and expectations of a rise in inflation have raised concerns that the US Fed may not go for even two rate cuts this year.

According to Reuters, the minutes from the US Federal Reserve's last meeting revealed that policymakers expect inflation to keep slowing down this year. However, they also noted a growing risk that inflation could remain stubborn, partly due to concerns about Donald Trump's policies.

Trump will take office on January 20. There is much speculation about his plans for tariffs and protectionist measures. Experts believe his policies may drive up inflation, which would be a severe blow to the central bank's efforts to keep price rises under control.

Technical outlook of Nifty 50

Shrikant Chouhan, the head of equity research at Kotak Securities, observed the index formed a bearish candle on the daily charts and a lower top formation on the intraday charts, indicating further weakness from the current levels.

"For traders now, 23,650/78,000 will be the key level to watch; below this level, the market could continue its weak formation till 23,400-23,375/77,300-77,200. If the indices rise above 23,650/78,000, they could bounce back to 23,750-23,800/78,300-78,500. Short-term traders should remain cautious and be very selective, as there is a risk of getting trapped at lower levels," said Chouhan.

According to Reliance Securities, Nifty 50 has failed to break 24,800 levels on multiple counts andclosed near the lower range of the support levels in the previous session. The next band is at 23,250 levels.

"On the higher side, the crossover of the resistance band of 24,000-24,150 levels will witness a broader up-move across sectors and stocks. RSI has failed to sustain an above-the-average line and is trending lower, while other key technical indicators are in neutral mode from current levels. The highest call OI has moved lower to 24,000 strikes, while the downside, the highest put is at 23,000 for the weekly expiry," said Reliance Securities.

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Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.