Sensex crashes over 1,200 points: What’s behind ₹7 lakh crore market rout today? Here are 5 key reasons

Stock market crash: The Indian stock market witnessed a strong selloff in trade on Tuesday, January 21, as investors remained cautious after US President Donald Trump unveiled plans for trade tariffs on neighbouring countries shortly after taking office.

Both benchmark indices, the Sensex and the Nifty 50, declined over 1 per cent each. The 30-pack Sensex declined 1,235 points, or 1.60 per cent, to close at 75,838.36, while its NSE counterpart, Nifty 50, lost 320 points, or 1.37 per cent, to end at 23,024.65.

Shares of Zomato, NTPC, Adani Ports, ICICI Bank, SBI and Reliance Industries ended as the top losers in the Sensex index. Only two stocks- UltraTech Cement and HCL Tech- closed with gains in the index, while shares of Hindustan Unilever ended flat. 

The BSE Midcap and Smallcap indices dropped 2 per cent each.

A sharp selloff in the Indian stock market wiped out over ₹7 lakh crore of investors' wealth, as the total market capitalisation of BSE-listed firms fell to approximately ₹424.3 lakh crore from ₹431.6 lakh crore in the previous session.

Investors sold equities across sectors as all sectoral indices on the NSE ended with significant losses. Nifty Realty and Consumer Durables ended with a deep cut of over 4 per cent, while Nifty Bank, Auto and Financial Services closed almost 2 per cent lower each.

What drove the Indian stock market down today?

Here are five key factors that weigh on stock market sentiment:

1. Uncertainty surrounding Donald Trump's trade policies

On the very first day in office, Trump made several announcements, including tariffs on Canada and Mexico. Trump has threatened higher tariffs on several countries, including India. His immigration policies could also impact the Indian tech sector.

"Trump 2.0 has kicked off without much clarity on Trump’s likely economic decisions. In his inaugural address, he was clear on immigration but sounded vague about tariffs. The indication of a likely 25 per cent tariff on Canada and Mexico suggests that the tariff hike policy will be implemented gradually," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

According to Prashanth Tapse, Senior VP (Research), Mehta Equities, investors now fear that Trump's inaugural speech to safeguard America's interest could hurt the economic prospects of many countries, including India, going ahead.

2. Caution ahead of Union Budget 2025

Investors are now focused on this mega-policy event. Finance Minister Nirmala Sitharaman is set to present the Budget on Saturday, February 1. Expectations are high that the government will announce measures to boost consumption, strengthen the rural sector, and support manufacturing and infrastructure, all while maintaining fiscal prudence.

However, any disappointment in key expectations could deliver another blow to the already weak market sentiment.

3. Foreign capital outflow

A relentless selloff by foreign portfolio investors (FPIs) amid the strengthening US dollar and rising bond yields is a key factor behind the Indian stock market's downtrend in recent months. Except for January 2, FPIs have been selling Indian equities every day in January, offloading nearly ₹51,000 crore as of January 20.

4. Unimpressive Q3 earnings

After weak Q1 and Q2 earnings, the December quarter earnings so far have also been unimpressive, exhibiting mixed trends across sectors. Experts say disappointment on the earnings front is keeping market sentiment subdued.

"While the Indian economy is doing fine fundamentally, corporate earnings have been weak for a few quarters as economic activity has slowed. Markets track earnings and flows," Priyanka Khandelwal, a fund manager at ICICI Prudential AMC, told Mint.

5. Concerns over weakening macro

The Indian economy is showing signs of weakness, which has contributed to the cautious sentiment in the market.

"We are not seeing broad-based demand growth in the country, which is delaying the intensity of the private capex cycle we should see in India. Government capex has also slowed down, and that’s hurting non-farm employment. Hence, despite the policy interventions to accelerate growth in our economy, we’re seeing softness," Khandelwal said.

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