On Monday, Indian equity benchmarks recorded their steepest single-day decline in three months, leaving investors on edge and sparking widespread concerns about market stability. The Sensex slipped by 1,258 points, or 1.6%, to close at 77,965, while the Nifty fell by 389 points to settle at 23,616. This sharp drop wiped out nearly Rs 11 trillion in market capitalization, bringing the total valuation of BSE-listed firms down to Rs 438 trillion.
The crash was driven by a mix of global and domestic factors, but yet, even as markets reeled from the losses, Gift Nifty pointed to a glimmer of hope. Early trends from Gift Nifty suggest positive signs for the Indian market’s recovery, offering investors a reason to stay optimistic despite the recent turmoil.
Gift Nifty Signals a Glimmer of Hope
Despite Monday’s steep market crash, the Gift Nifty provided a silver lining for investors, signaling potential recovery in the near term. Early trends showed the Nifty futures trading at a premium of nearly 55 points over the Gift Nifty, suggesting a positive opening for the Indian indices.
The optimism wasn’t limited to domestic cues alone. Global markets, particularly Japan’s Nikkei 225, posted a significant rally, surging 2.40% or over 900 points to close at 40,264.50. This robust performance from international indices could help lift investor sentiment and stabilize domestic markets.
While challenges remain, these early signs from Gift Nifty and global markets point toward the possibility of a rebound, offering some much-needed hope to anxious investors. Source: Mint
What Happened in the Market
The overall impact of these factors culminated in the biggest single-day fall for the Sensex and Nifty since October 3.
As measured by the India VIX, market volatility rose 15.6% to 15.7, marking its highest level since November 22, 2024. The broader indices also faced sharp declines:
- The Nifty Midcap 100 dropped 2.7%, its steepest fall since December 20.
- The Nifty Smallcap 100 declined by 3.2%, its worst drop since October 22.
Market breadth was weak, with 3,530 stocks declining and only 611 advancing on the BSE. These numbers underline the widespread negative sentiment that gripped the markets. Source: Economic Times
Sector-Wide Declines
Monday’s market crash saw significant declines across multiple sectors. Metals, PSU banks, real estate, oil and gas, and financials were among the worst hit. For instance:
- Union Bank of India shares fell 8%. Companies like IREDA, Adani Energy Solutions, Bank of Baroda, HPCL, SJVN, IRFC, YES Bank, and RVNL ended 5-7% lower.
Even major contributors to the Sensex’s decline, such as ITC and Reliance Industries, witnessed steep drops. ITC’s shares fell by 2.75%, reflecting adjustments for the demerger of its hotels division. These sector-wide declines highlight the broad-based nature of the market crash.
Here are the four primary reasons behind this crash:
Fear of the HMPV Virus Hitting the Economy
Detecting the Human Metapneumovirus (HMPV) cases in Karnataka and Gujarat has sparked fears of another pandemic-like situation. While the government has assured there is no need to panic, investors remain cautious.
According to the Indian Council of Medical Research (ICMR), these cases were identified during routine surveillance. Reports suggest that similar cases are rising in countries like Malaysia and China, with unconfirmed reports of a state of emergency in China.
Several states, including Maharashtra and Karnataka, have issued precautionary guidelines to curb the spread. The uncertainty surrounding the virus’s potential economic fallout has unsettled the markets, echoing memories of the impact of the COVID-19 pandemic.
Continued FII Selling
Foreign Institutional Investors (FIIs) have been consistently pulling out funds, which has significantly impacted the market. On Monday alone, FPIs net sold equities worth
Rs 2,575 crore. Over the month, their total equity sales have reached Rs 7,160 crore, and in January, over Rs 4,500 crore was withdrawn.
This trend of FII selling has been ongoing since late September, driven by lackluster corporate earnings and weakening demand. Elevated valuations in Indian markets, coupled with more attractive investment opportunities in markets like the US, have also contributed to this selloff.
Until India’s macro and micro growth rates show substantial improvement, FII flows are unlikely to pick up, and market movement may remain subdued.
HDFC Bank’s Decline
HDFC Bank, the stock with the highest weightage in the Nifty 50, reported a concerning quarterly update. According to provisional numbers, the bank’s deposits grew by 15.8% year-on-year, while loans grew by a mere 3%. Its corporate loan portfolio declined by 10.3% YoY, while retail loans increased by 10% and commercial and rural banking loans by 11.5%.
These figures raised concerns about the bank’s growth prospects, leading to a 2.2% decline in its stock, which hit an intra-day low of Rs 1,710.60. This drop in HDFC Bank’s performance had a cascading effect on market sentiment, given its significant influence on the indices.
Muted Earnings Expectations
Market expectations for corporate earnings have been subdued, adding to investor concerns. Following a sluggish Q2 performance, analysts predict that Q3 and Q4 will also show muted growth. Many experts believe that the earnings pain will persist for several quarters, with overall FY26 earnings expected to remain moderate compared to the previous fiscal year.
This subdued outlook has discouraged investors, further exacerbating the market downturn. Weak earnings expectations impact market confidence, leading to a broader selloff across various sectors. Source: Economic Times
Final Thoughts
The recent stock market crash highlights the impact of global and local factors, including fears of the HMPV virus, ongoing FII selling, and low earnings expectations. Understanding these causes can help investors stay informed and better prepared for future market movements.
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I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.
