Strong US jobs data dampened early rate cut expectations, the rupee logged its steepest single-day fall in nearly two years, and unabated foreign fund outflows further dampened investor sentiment
Market Crash: For D-Street, a lot doesn't seem to be going well. From sluggish domestic GDP growth to a muted earnings season, 2025 hasn’t exactly kicked off on a high note. While investors had hoped for a fresh wave of optimism in the new year, the opposite seems to be true so far. Adding to the woes, Trump’s presidency has led foreign capital to flock towards US market instruments, leaving little cheer for domestic markets.
On Monday, strong US jobs data dampened early rate cut expectations, the rupee logged its steepest single-day fall in nearly two years, and unabated foreign fund outflows further dampened investor sentiment. Falling for the fourth straight session, the 30-share BSE benchmark Sensex tanked 1,048.90 points or 1.36%, settling at 76,330.01. During the day, it had plunged 1,129.19 points or 1.45%, to 76,249.72. The NSE Nifty dropped 345.55 points or 1.47%, closing at 23,085.95.
US Economic Data: Data released on Friday showed that US job growth surpassed expectations in December, leading to a rise in US 10-year Treasury yields to their highest level in 14 months. This development increased the chances of fewer interest rate cuts in 2025, reducing the appeal of emerging markets such as India for investment.
"Market will continue to be under pressure from the many strong headwinds. The blow out jobs data from the US with 2.56 lakh job creation in December against expectations of 1.65 lakhs means the rate cut expectations in 2025 is now down to one. With the unemployment in the US down to 4.1% the economy doesn’t need any stimulus. This good economic news is turning out to be bad news for markets which were discounting many rate cuts this year," said VK Vijayakumar of Geojit Financial Services.
Persistent foreign investor selling: In January so far, foreign portfolio investors (FPIs) have sold off Indian equities worth over Rs 21,350 crore, after a Rs 16,982 crore selloff in December. Since October of last year, they have been in a selling phase. In October, they offloaded Indian stocks worth Rs 1,14,445 crore and in November, they withdrew Rs 45,974 crore from the Indian stock market.
Rising crude oil price: Oil prices surged for the third straight session on Monday, with Brent crude rising above $80 per barrel to its highest in over four months, on the back of wider US sanctions on Russian oil and the expected effects on exports to top buyers India and China.
"Rising crude oil prices would raise concerns of a spike in domestic inflation, which could further delay any rate cut hopes from the RBI in the near to medium term," Prashanth Tapse, Senior VP (Research), Mehta Equities Ltd, said.
Global oil benchmark Brent crude jumped 1.43% to USD 80.90 per barrel.
Weakening Rupee: The Indian rupee tanked to a lifetime low of 86.61 against the US dollar in intraday trade on Monday amid rising crude oil prices and elevated dollar. Following a robust payrolls report on Friday, the US dollar remained close to 14-month highs, finishing at 86.58 per dollar. It ended the session 58 paise down at its historic low of 86.62 (provisional) against the US dollar on Monday.
FII outflows have put downward pressure on the rupee as demand for dollars rises. At the same time, a weaker rupee heightens currency risk for FIIs, which could lead to even more outflows.
Concerns about weak Q3 earnings: Following a muted Q1 and Q2 earnings season, market analysts expects only a modest recovery in the select sectors. A substantial rebound is expected to occur only by Q4, suggesting that market pressure may continue for an extended period.
"Q3 is also going to be mainly subdued. Some improvements could occur in some pockets, but an outright reversal is unlikely. Significant improvements could be seen from Q4 onwards," said Ajit Mishra, SVP of research at Religare Broking.