Dalal Street Selloff Deepens: Key Reasons For Monday's Plunge

The risk-off mood continued to weigh on Dalal Street investors as the sour start to the year only worsened with the broader market along with their top peers extending the selloff.

The benchmark Nifty 50 and the 30-stock Sensex fell as much as 1.15% and 1.11% on Monday taking the fall to over 13% for both indices since their September peak.

Nifty Midcap 100 is 15% from an all-time high while the small-cap index is just 2% away from entering the 'bearish' territory. Nifty Midcap and Smallcap is on course to record the biggest monthly fall since March 2020. The Nifty Next 50—the next rung of liquid securities after the Nifty 50—has already fallen into the so-called 'bearish' zone.  

The deepening selloff in local stocks comes ahead of key macroeconomic events like the US Federal Rate decision and the Indian budget.

Disappointing quarterly earnings and the looming risk of further downgrades continue to weigh on investor sentiment.

Topline growth in the third quarter has been subdued, with profit growth remaining sluggish at best. As a result, earnings estimates for fiscal 2025 have been revised downward.

The slowdown in corporate earnings spells concern for market, according to BNP Paribas. "In the last six months, we have seen broad-based earnings estimate cuts. Initial trends for the December 2024 quarter, as highlighted in business updates by the companies, do not seem very encouraging."

"Overall, we see low likelihood of valuation multiples rerating in 2025 and expect market returns to track or slightly lag earnings growth," it added.

Foreign portfolio investors stayed net sellers of Indian equities for the 16th straight session on Friday, resuming their selling after a brief pause.

So far in January, the FPIs have sold equities worth Rs 64,156 crore, according to the National Securities Depository Ltd. Foreign investors have offloaded over Rs 70,000 crore since December – after a record exodus from September to November.

The third quarter earnings season has been broadly in line with tepid expectations, according to Shrikant Chouhan, Head Equity Research, Kotak Securities. "However, management commentary remained uninspiring, further weighing on sentiments. FPI flows are expected to remain volatile."

Indian along with other Asian stocks are expected to remain volatile given the new US President Donald Trump's traiff policies. Trump had gone soft about his tariff plans in his inaugural address but came out of Canada and Mexico the following day.

The latest on his list was Colombo. Trump ordered tariffs and sanctions on Colombia hours after its leftist president refused to allow two military planes carrying deported migrants.

Meanwhile, traders also brace for the upcoming rate decision by the US Fed. The US central bank is widely expected to hold interest rates steady, according to Bloomberg.