Sensex plunges more than 600 points: Why is the Indian stock market declining, and what can I do right now?

Today's stock market: The Nifty 50 edged closer to 23,500 on the negative, while the equity benchmark Sensex plummeted more than 600 points during intraday trading.

Today's stock market: On Wednesday, January 8, the Indian stock market continued its downward trend amidst weak global cues, confirming concerns that the gains from the previous session were not sustainable. Notwithstanding numerous obstacles, market sentiment is still brittle.

The Nifty 50 dropped below 23,500, and the equity benchmark Sensex plummeted more than 700 points during intraday trading.

After closing at 78,199.11, the Sensex began at 78,319.45 and fell more than 700 points, or 0.90 percent, to below 77,500. After closing at 23,707.90, the Nifty 50 began at 23,746.65 and fell more than 200 points, or 0.90 percent, to 23,496.15.

Up to 2% of the BSE Midcap and Smallcap indices were broken.

Due to persistent FPI selling, the Nifty 50 fluctuated between 23,500 and 24,700 levels over the past two months before reversing back to about 23,500, according to Vikas Jain, Head Research Analyst at Reliance Securities.

According to Jain, the index will drop to 21,800–21,500 levels if the support zone of 23,200 is breached. These levels correspond to long-term averages, election lows, and a 23.6% retracement of the preceding move (7,511-26,277).

Why is the stock market in India declining?
The following five major causes of today's market fall were emphasized by experts. Look at this:

1. Ineffective global cues

The attitude of the home market was impacted by global downturn. Amidst a strengthening US currency and rising bond yields, Wall Street closed lower overnight, paving the way for a loss in major Asian markets on Wednesday.

2. Diminished expectations of a US Fed rate cut

Investor anxiety is being maintained, according to experts, by the solid US macro figures, which are increasing the likelihood of a non-significant rate cut by the US Fed this year. According to Reuters, the number of job opportunities in the United States increased to 8.098 million in November, surpassing both the 7.839 million amount in October and the 7.7 million increase predicted by analysts. The US jobs data, which is due on Friday, will have a big impact on investors' expectations on the US Federal Reserve's interest rate trajectory.

"Emerging markets continue to be weakened by strong US macroeconomic. Better-than-expected job data have caused the US 10-year bond yield to jump to 4.67 percent, a sign that the services sector is performing well. This implies that the Fed may decide to hold rates in January, which would increase bond yields and strengthen the dollar even more. As a result, the RBI may decide to retain rates in February, defying market expectations of a rate decrease, according to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

3. Exercise caution before Q3 earnings

Ahead of the start of the December quarter (Q3) earnings, sentiment is similarly cautious. It is anticipated that Q3 earnings will show some improvement following two consecutive poor quarters.

Experts warn, nevertheless, that there might not be a complete recovery and that a noticeable resurgence won't be evident until Q4.

4. The IT and financial giants' poor performance

In benchmark indexes, banks and IT stocks are heavily weighted. The stock benchmarks fell as a result of losses in HDFC Bank, ICICI Bank, Infosys, and SBI shares. During intraday trading, the Nifty Bank and Nifty IT indices fell 1.5% each.

5. Outflow of foreign capital

One of the main causes of the Indian stock market's recent decline has been the ongoing exodus of foreign capital. Due to rising US bond yields and a strengthening US dollar, foreign portfolio investors, or FPIs, have sold off Indian stocks worth over ₹8,500 crore so far in January.

Manish Jain, Director-Institutional Business (Equity & FI) Division at Mirae Asset Capital Markets, noted, "The correction can be attributed to continuous FPI selling, rising dollar, rising crude, the start of result season on a cautious note, Trump assuming office in the US and its potential policy impacts shortly."

Other elements

Fragile market sentiment is caused by a number of additional reasons in addition to the five main ones listed above. These include concerns about the yen-carry trade in the event that the Bank of Japan hikes interest rates, stretched values in the Indian market, uncertainty surrounding Donald Trump's trade policy, and prudence in front of the Union Budget 2025.

"Today's market attitude has been affected by the government's poor first advance GDP projections for FY25. Manish Chowdhury, Head of Research at StoxBox, stated, "We think that the upside in markets has also been restrained by global uncertainty, particularly in relation to Donald Trump's policymaking, the strength of the Dollar Index, and largely modest domestic earnings expectations from the upcoming corporate results."

Now, what should investors do?

According to Vijayakumar, investors that adopt a somewhat longer-term perspective on the market can purchase large-cap stocks in IT, financials, pharmaceuticals, and a few types of automobiles. When India's macros improve in a few months, Vijayakumar thinks these segments would recover.

For high-quality stocks, one might go to the pharmaceutical and healthcare industries, according to Ajit Mishra, SVP of research at Religare Broking.Additionally, he stated that investors can search for shorting possibilities in the metal and banking industries.