Market mayhem as Sensex tumbles over 1,000 points; Rupee falls past 86 to dollar

It was a manic Monday for Dalal Street investors as broader equity markets crashed once again and the rupee hit another low against the US Dollar, amid continued sell-off by foreign institutional investors.

The BSE Sensex tumbled 1,049 points or 1.4 per cent to end the day at 76,330.01 level. The wider NSE NIfty50 fell 346 points or 1.5 per cent to close at 23,085.95 level.

The mid and smallcaps saw deeper cuts on Monday. The BSE midcap index plunged 4.2 per cent (1,845 points) and the smallcap index slumped 4.1 per cent (2,180 points).

Of the 30-share Sensex, 26 stocks ended in the red. Food delivery platform Zomato was the biggest loser on the Sensex, tumbling 6.50 per cent. Other major losers included Adani Ports and Power Grid, which slid over 4 per cent; Mahindra and Mahindra, Tata Motors, NTPC and Tata Steel declined over 3 per cent.

Data released on Friday, January 10, showed US jobs data had surged way more than expected in December, with non-farm payrolls adding 2,56,000 jobs. The strong data has reinforced the cautious approach that the US Federal Reserve has taken in rate cuts this year. After cutting rates several times towards the end of 2024, the Fed signalled there would be fewer than expected rate cuts this year.

The strong US jobs data, coupled with continued uncertainty around how incoming President Donald Trump's trade policies will play out, have led to massive selling by foreign institutional investors from emerging markets, including India, and has strengthened the dollar against most currencies.

In this backdrop, markets around the world saw deep cuts on Monday. The Nikkei 225 index in Tokyo was down 1.1 per cent and the Hang Seng index in Hong Kong declined 1 per cent. Major European markets like the FTSE 100 in London, the German Dax and the CAC 40 in France, also fell.

"The global markets witnessed a significant sell-off, prompting a similar response in domestic markets, due to strong US payroll data, suggesting fewer rate cuts in 2025. This has strengthened the dollar, driven up bond yields and made emerging markets less attractive," pointed Vinod Nair head of research at Geojit Financial Services.

Brent crude oil prices rose their highest in four months after the Biden administration in the US slapped fresh sanctions against Russian exports, raising concerns that the move could curb oil supply in the market. For major oil importers like India, the price rise is another headwind.

Donald Trump will take charge as the new US President on January 20 and the expectation is that he may raise tariffs on imports from various countries like China and India. The uncertainty around how this potential move will pan out has further dampened global investor sentiment.

In the first 10 days of 2024, foreign portfolio investors pulled out Rs 22,194 crore from India's equity markets, data from NSDL showed. Amid the sell-off, rupee has continued to remain under pressure, falling past the 86 mark to the US dollar. It is likely to remain under pressure, given the near-term uncertainties, experts have said.

Other than global worries, there are several factors that investors will be watching out for domestically. The Union Budget will be presented on February 1. While Finance Minister Nirmala Sitharaman is expected to maintain fiscal prudence, there is a growing expectation that she will have to take steps towards boosting domestic consumption. There is also a demand for revising income tax.

The earnings season for the October-December quarter has just got underway. After many companies announced lackluster earnings in the July-September quarter, all eyes are on how things pan out this time around.

Amnish Aggarwal, director, institutional research at PL Capital Group, expects companies under the broking firm's coverage to report a 2.8 per cent sales growth, while profit before tax is seen rising 4.0 per cent.

"We believe upcoming budget and Trump 2.0 hold key to market returns. While government of India might miss out on revenue collection, lower capex will help sustain fiscal discipline in FY2025. We expect a growth-oriented budget with an attempt to pump prime the economy and incentivize the middle class to increase spending," he said.

The broking firm has revised its 12-month target in the base case for Nifty 50 to 27,172 from 27,381.

Earlier on Monday, S. Naren the chief investment officer of ICICI Prudential Asset Management, said returns in the near-term were likely to moderate and preferred large and mega caps over overvalued small and midcaps.