Stock Market Crash: Indian blue-chip indices, the Sensex and Nifty, fell sharply on Monday, responding to a stronger-than-expected US jobs report that dashed hopes for early interest rate cuts from the Federal Reserve. Slowing earnings growth also had a significant impact on market sentiment.

The BSE Sensex fell more than 1,100 points, hitting a low of 76,250, while the Nifty50 fell 350 points to 23,047. The market capitalization of all BSE-listed companies declined by Rs 14.54 lakh crore, to Rs 416.08 lakh crore.

Key Factors Driving Sensex Crash Today

US Economic Data and Fed Rate Forecast: The US jobs report, issued last Friday, stunned global markets, raising concerns that the Federal Reserve may postpone its planned rate decrease. The US unemployment rate dipped to 4.1% in December, despite strong job growth, implying that monetary easing is unlikely in the short term. This has resulted in tighter global liquidity, increasing pressure on rising markets such as India.

"Multiple headwinds are weighing on markets. According to VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, the robust US jobs report has decreased expectations of Fed rate cuts in 2025, with only one cut now expected. "The rise in US bond yields will likely continue to drive foreign selling in Indian equities," says Vijayakumar.

Foreign portfolio investors (FPIs) have continued to aggressively sell Indian stocks. FPIs sold equities worth more than Rs 21,350 crore in January alone, after outflows of Rs 16,982 crore in December. Concerns about inflated valuations, weak corporate profits, and rising US government yields are driving the continuing selling pressure.

Crude Oil Price Surge: New US sanctions on Russia have pushed global crude oil prices to a 15-week high, potentially disrupting global supply systems. As a large oil importer, India is especially exposed to rising crude prices, which can strain fiscal health and intensify inflationary pressures, adding to market concerns.

Weakening Rupee: The Indian rupee fell to an all-time low of Rs 86.27 per US dollar in early trade on Monday. The strong dollar, fueled by rising US bond yields and positive employment figures, has put downward pressure on the rupee. This depreciation is anticipated to exacerbate capital outflows and raise import costs, heightening investor fears.

Global Market Selloff: Asian markets matched US shares' weakness, with the MSCI index of regional companies poised for its fourth straight day of losses. Strong US economic data has dampened expectations for Federal Reserve rate reduction, resulting in a larger worldwide selloff in markets and bonds. Domestic pressures, such as a sinking rupee and foreign outflows, have combined with global headwinds, such as increased crude prices and tighter liquidity, to create a challenging environment for Indian markets.

Bond Yields: The 10-year US Treasury yield rose to 4.73%, its highest level since April, following the release of solid job data and strong service sector growth. Analysts now expect the Fed to hold rates constant in January, boosting the dollar and raising bond yields.

"With the US 10-year bond yield above 4.7%, foreign institutional investors (FIIs) will most likely continue to sell, but this creates opportunities for long-term investors to buy large-cap stocks, particularly in banking." However, Vijayakumar predicted that the larger market will continue to be under pressure.

Rupee Hits Record Low: The Indian rupee slid 23 paise to a record low of 86.27 against the US dollar in early Monday trade, while the dollar index remained around 109.9. Currency depreciation and foreign outflows are inextricably intertwined, as FII outflows put more pressure on the rupee, while a lower rupee increases currency risk for FIIs, potentially leading to even more outflows.

Earnings Downgrade: After four years of strong double-digit growth, Indian corporate earnings have begun to decelerate, with analysts lowering earnings forecasts for the last two quarters. Q3 numbers are unlikely to surprise, and brokerages predict single-digit earnings growth for FY25.