Nifty, Sensex Crash: Five Factors That Spooked Dalal Street

Indian stock market tumbled on Monday with volatility spiking to over a three-month high as markets continued to be under the grips of bears amid global volatility.

Domestic stocks also witnessed a déjà vu of sorts as sentiments soured after two cases of human metapneumovirus (HMPV) were reported in India. However, the Union Health Ministry assured the public that India is well-prepared to handle respiratory illnesses.

NSE Nifty 50 Index fell below the crucial 200-day moving average after having traded briefly above the previous week. As of 12:10 p.m., the S&P BSE Sensex Index was down 1,263 points, or 1.6%, at 77,959.9 while the NSE Nifty 50 was 403 points or 1.68% lower at 23,601.5.

The volatility gauge — India VIX — soared by over 15% during the day, the highest since Oct. 3, 2024. The market capitalisation of Nifty 50 stocks plunged by Rs 2.4 lakh crore as of 12:45 p.m.

Indian stocks continued to see selling by global funds after they turned buyers in the first half of December. Since Dec. 11, global funds have sold over Rs 35,429 crore.

Foreign institutions have been net sellers of Rs 4,285 crore worth of Indian equities so far in 2025, according to data from the National Securities Depository Ltd., which is updated till the previous trading day.

In 2024, foreign funds have bought Rs 427 crore worth of stocks, net of primary and secondary market.

FIIs are likely to continue to sell going forward, so long as the dollar continues to rally and the U.S. bonds yield attractive returns, according to VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services. "The dollar index at around 109 and the 10-year bond yield above 4.5% are strong headwinds for FII flows."

Public sector banks led the losses on Monday as analysts expect earnings pressure from slower loan growth, pressure on margins and normalisation in credit costs.

Nifty PSU Bank index fell nearly 3.5% and was the top loser among the secots on the biggest stock exchange. Nifty Bank index fell over 1.5% during the session.

Union Bank of India Ltd. and Bank of Baroda Ltd. led the losses among the state-owned lenders with a fall of 6.5% and 4.6%, respectively. HDFC Bank Ltd. and Kotak Mahindra Bank Ltd. were among the top stocks contributing the fall in the benchmark Nifty 50.

Banks are expected to see earnings pressure from slower loan growth and pressure on net interest margin, according to a report from HSBC. Large lenders are likely to report healthy earnings and lenders with MFI portfolios are likely to report high credit costs, it said.

Analysts warn global markets are expected to continue seeing heightened volatility in the first half of the calendar year 2025 as the new US administration under Donald Trump is likely to implement significant policy changes.

“The first couple of quarters will contain more volatility, stemming from the change in US administration and its new policies,” Sanjay Mookim, head of research at JPMorgan India, told NDTV Profit earlier.

Policies in the US government during the Trump presidency, trade policy, rate cut by the Federal Reserve and the direction of currency and oil prices will be the monitorables during the year.

These events will keep the Indian equity market volatile, and it could respond in either direction based on the developments, Axis Securities said in a report. "However, we expect the first half of 2025 to be more volatile."

Most stocks in Asia traded lower on Monday with Hang Seng leading the fall among major benchmarks in the region.

The sentiment for domestic stocks also soured as concerns mounted over the HMPV outbreak in China and reports of the first two cases being detected in India.

India reported its first couple of cases of Human Metapneumovirus in Bengaluru, where an eight-month-old baby and a three-month-old female infant tested positive for the virus.

In response to growing concerns, the Union Health Ministry assured the public that India is well-prepared to handle respiratory illnesses. The ministry noted that there has been no unusual surge in cases so far, and that the situation is being closely monitored.

Dr Jacob John, virologist and professor at CMC Vellore, told NDTV Profit that HMPV is far from a cause for panic and reassured the public there was no need for heightened alarm.

Shares of index heavy-weight ITC Ltd. corrected by 6% on their ex-date today for the hotels business' demerger.

ITC shares adjusted by Rs 27 per share on BSE to settle at Rs 455, down 5.93%. On NSE, the counter dipped 5.4% lower to settle at Rs 455.60 apiece.

Eligible shareholders will receive one share of the demerged ITC Hotels Ltd. for every 10 shares of the parent they hold. The record date for the demerger also falls on Monday, which means shareholders in ITC's books as of today will be considered eligible.

The demerger came into effect on Jan. 1, according to the company's disclosures.