The Indian stock market has been on a dramatic downward trajectory since September 27, 2024, when the Sensex hit an all-time high of ₹85,978.84. Over the past four months, the benchmark index has plummeted by 10,000 points, or 11.79%, leaving investors rattled. The NSE Nifty Index followed suit, declining by 12.38%. This sharp downturn, featured prominently in daily news highlights, has primarily impacted large-cap stocks, which faced a 13.27% drop, driven by significant foreign investor sell-offs.
The sell-off hasn’t spared any segment, as the NSE Mid-cap Index fell by 12.85% and the Small-cap Index dropped by 9.87%. While IT stocks weathered the storm relatively well, capital-intensive sectors such as automobiles and oil & gas faced severe setbacks.
Key Factors Behind the Market Slide
A combination of domestic and global challenges has created a perfect storm. India’s GDP growth slowed to a seven-quarter low of 5.4% in Q2 FY2025, with high-frequency indicators like banking credit growth, GST collections, and port traffic all moderating throughout 2024. Despite signs of stabilization, persistent food inflation and rising commodity prices continue to weigh on the economy.
Global influences also played a role, as high U.S. bond yields bolstered the dollar, putting further pressure on the rupee. According to economic news updates, the aftermath of the U.S. presidential election, coupled with the rise in the 10-year U.S. bond yield to 4.7%, shifted investor preferences toward dollar assets, prompting heavy selling by foreign portfolio investors (FPIs).
In October alone, FPIs sold equities worth ₹94,017 crore, followed by ₹21,612 crore in November. While there was a brief respite in December with ₹15,446 crore of net purchases, selling resumed in January 2025, with ₹51,748 crore offloaded by January 21.
Impact on Investors
The market’s decline has significantly affected market capitalization, which has dropped by ₹53.86 lakh crore since September 27, 2024, to ₹438.79 lakh crore as of January 21, 2025. Mutual fund investors have felt the sting, with the net asset values (NAVs) of schemes plunging. Jacob Cyriac, a software engineer based in the U.S., remarked, “The XIRR of my investments in mid- and small-cap schemes has fallen by 21% in just a few months. Experts advise continuing with SIPs, but it’s hard not to worry.”
Despite the downturn, equity fund inflows rose by 14.5% in December, reaching ₹41,156 crore, indicating that domestic investors remain cautiously optimistic about long-term recovery.
Sectoral Performance
The decline has been uneven across sectors. Automobile shares experienced a steep 19.22% drop, while oil & gas stocks fell by 17.47%. The metal sector was also hit hard, with its index dropping 15.23%. IT shares, however, demonstrated resilience, shedding only 1.45% amid widespread selling pressure.
Future Outlook
Market analysts anticipate 2025 to deliver muted, single-digit returns as Indian GDP growth struggles to regain momentum. High-frequency indicators, although showing signs of recovery, remain weak. “Valuation multiples are unlikely to see a significant rerating this year,” said Kunal Vora, Head of India Equity Research at BNP Paribas. He emphasized that market returns are expected to align with or lag behind earnings growth.
Domestic inflows continue to provide crucial support, mitigating some of the losses. However, global developments, particularly U.S. policies under Donald Trump, are expected to influence the trajectory of markets and economies in the months ahead.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, added, “While large-cap corrections appear mostly complete, mid- and small-cap stocks may still face further declines of 3-4% under adverse conditions. Historically, corrections of around 15% have been common, so this fall is not unprecedented.”
Resilience in the Face of Volatility
Amid the turmoil, market participants are urged to focus on long-term strategies. Experts recommend continuing SIPs to benefit from eventual recovery cycles, as history suggests markets tend to rebound strongly after corrections. With both domestic and global factors at play, staying informed through daily news highlights and economic news updates is crucial for navigating this period of uncertainty.
