Stock market crash: Sensex tumbles 700 points; what drove the Indian stock market down today?

Stock market today: A day after clocking a strong gain of nearly 2 per cent, Indian stock market benchmarks—the Sensex and the Nifty 50—suffered significant losses on Friday, January 3, due to profit booking amid the strengthening US dollar.

The BSE benchmark Sensex opened at 80,072.99 against its previous close of 79,943.71 and fell 834 points to an intra-day low of 79,109.73. However, the 30-pack index recouped some losses and closed 721 points, or 0.90 per cent, down at 79,223.11.

Meanwhile, its NSE counterpart, the Nifty 50 opened at 24,196.40 against its previous close of 24,188.65 and dropped 213 points, or 0.90 per cent, to 23,976 during the session. At close, the index was 184 points, or 0.76 per cent, down at 24,004.75.

Mid and small-cap indices outperformed the benchmarks. The BSE Midcap index slipped 0.33 per cent, while the BSE Smallcap index, down 0.02 per cent, closed almost flat.

Sectoral indices today

Bank, financial, IT and pharma packs suffered strong losses today.

Nifty Bank fell 1.20 per cent, while the Nifty Financial Services index dropped 1.13 per cent. The Nifty Private Bank index declined 0.90 per cent, but the Nifty PSU Bank index rose 0.31 per cent.

Nifty IT (down 1.41 per cent), Pharma (down 1.23 per cent) and Healthcare (down 1.16 per cent) lost over a per cent.

What drove the Indian stock market down today?

Experts have highlighted the following five key factors that might be behind the Indian stock market's decline. Take a look:

1. Profit booking in heavyweights

Experts pointed out that profit booking in select heavyweights, including HDFC Bank, ICICI Bank, TCS, Zomato and ITC was the primary reason behind the downturn in the benchmark indices. Investors are booking profits in these stocks as concerns over stretched valuation and weak earnings persist while global uncertainty also weighs on sentiment.

2. Underlying sentiment remains cautious

As per analysts, investors remain cautious ahead of Q3 earnings and amid anticipation of major policy shifts in the US administration after Donald Trump takes charge. They underscored that the market might see occasional gains due to short covering, but a decisive move could only be expected after the December quarter earnings start coming out.

“Despite the short recovery in the past two sessions, markets lost the momentum as there is still a lot of pessimism due to slowing growth, higher domestic valuations, foreign fund outflows, and uncertainty over US trade policies post Trump's resumption as the country's president. Hence, markets may see bouts of correction, and investors will continue to maintain caution while keeping an eye on global developments,” said Prashanth Tapse, Senior VP -Research at Mehta Equities.

3. Dollar at two-year high

According to Reuters, the dollar was at a two-year high against a basket of currencies amid concerns that the US interest rates will stay higher for a longer period.

Significant gain in the dollar index is weighing on sentiment in emerging markets like India. A strong US dollar may accelerate foreign capital outflow from the Indian market.

"With the dollar index at 109.25 and the US 10-year yield at 4.56 per cent, the macro construct is not favourable for sustained FII buying," V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, observed.

4. Poor show by banking, financial, IT heavyweights

Banking, financial and IT sectors have significant weight in the benchmark index. When they fall, they drag the key indices down. On Friday, the Nifty IT, Nifty Bank and Financial Services indices dropped over 1 per cent each. These sectors are witnessing profit booking even though experts expect their December quarter numbers to improve quarter-on-quarter.

5. Volatility in the run-up to Union Budget, US Fed, RBI policy decision

Experts expect the market to experience volatility in January ahead of the US Fed policy decision, Union Budget 2025 and the Reserve Bank of India's (RBI) monetary policy.

The US Fed's policy meeting is scheduled for January 28-29. Finance Minister Nirmala Sitharaman will present the Union Budget 2025 on February 1, while the RBI MPC will meet to decide on policy rates on February 5-7.

Apart from these, the Trump factor will also keep the market jittery. Donald Trump will assume office on January 20. His policies on tariffs and work visas will be the focus of investors globally.

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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.