Stock Market Crash: Why Sensex Fell 780 Pts, Nifty Dropped 212 Pts After 3-Days Winning Streak?

Stock Market Crash: The Indian stock market snapped its three consecutive sessions winning streak on Friday, with Sensex and Nifty registering a 1% decline each. The performance turned sour because of extreme selling pressure in banking stocks. BSE Bankex dropped by more than 1,000 points, while Bank Nifty has nosedived by over 595 points after Axis Bank reported dull Q3FY25 results with the surge in slippages.

Accordingly, the stock market could not continue its gaining momentum which should have been driven by a massive surge in Reliance Industries stock price. Reliance is the top bull on January 17, after its Q3 results. Notably, IT stocks were also among top draggers with Infosys, Wipro, and Tech Mahindra posting sharp correction.

Sensex Price:

The benchmark opened at 77,069.19, which was its intraday high and above the previous session's print of 77,042.82. However, Sensex erased its mild gains and entered into a loop of selling pressure. The benchmark has nosedived by at least 779.53 points to hit an intraday low of 76,263.29. At the time of writing, the benchmark traded at 76,716.20. Lower by 326.62 or 0.42%.

Stocks like Zomato, Reliance, Nestle, Tata Steel, Power Grid and Asian Paints were top bulls with gains of 2% to 3%. However, stocks like Infosys, Axis Bank, Kotak Bank, M&M, ICICI Bank, TCS, and Bajaj Finance were top bears, declining by 1% to 6%.

Nifty Index:

This 50-scrip benchmark shed as much as 211.5 points to hit an intraday low of 23,100.35 in the first half session of January 17. The index opened lower at 23,277.10 compared to its previous session's print of 23,277.10. Its intraday high is also lower from the prior day to 23,292.10.

Currently, Nifty 50 is at 23,223.20, down by 88.60 points or 0.38%. Reliance, BPCL, Hindalco, Coal India, and Power Grid are top performers of Nifty, surging by 1.5% to 2.5%. However, Infosys, Axis Bank, Wipro, ICICI Bank and Kotak Bank dragged the benchmark.

Nifty Financial Services and Bank Nifty index nosedived by 1.4% each. Nifty IT index plummeted by 2.44%. Also, Nifty Private Bank shed 2.1%.

Why Market Is Falling Again?

Krishna Appala, Sr. Research Analyst, at Capitalmind Research said, since the recent peak in September 2024, the Nifty 50 has fallen by 11.5%, with the Midcap index down 12% and the Smallcap index sliding by 11%. The decline has steepened over the past week, but the real story lies beneath these numbers. Many individual stocks are down by 25-40%, reflecting the broader pain that major indices often mask.

Appala added this sharp correction is driven by two key factors: stretched valuations and weak earnings. He said, "Following the post-election rally in June 2024, Nifty 50 reached over 24x PE, while midcaps and small caps hit exorbitant levels of 45x and 35x, respectively. However, these valuations were not supported by earnings, with revenue growth for large caps at 11%, midcaps at 8%, and small caps at 10.4%. Adding to the headwinds, FIIs have offloaded ₹2.2 lakh crore in the last four months, including ₹43,000 crore in the first half of January 2025, driven by the "Trump trade" shifting capital away from emerging markets. A strengthening dollar (DXY nearing 110) and a depreciating rupee have only exacerbated the sell-off."

He believes Q3 earnings are critical in restoring confidence and stability.

Sensex and Nifty pulled back amidst weak global cues despite a lower dollar. On Friday, the dollar index corrected below the 109 level, pushing it towards its first weekly decline in seven weeks. Trading Economics data said the dollar is under pressure this week as a surprise decline in US core inflation boosted bets on further Federal Reserve interest rate cuts this year. It said, " Markets are now pricing in 41 basis points of total easing from the Fed this year, up from the 27 basis points seen earlier this month. The dollar weakened across the board this week, with the most notable depreciation against the yen, driven by increasing speculation that the Bank of Japan may raise rates next week."

What should investors do with the latest correction?

Appala believes corrections like these are an opportunity to evaluate your portfolio and ensure you are holding onto resilient companies. The key is to focus on companies with strong fundamentals, sectoral tailwinds, government policy support, and long-term growth potential. The principle is straightforward: Hold tennis balls and sell eggs. Ask yourself for each stock in your portfolio: Is this an "egg" that will crack under pressure or a "tennis ball" that bounces back stronger? Here's how to reassess your portfolio:

To navigate the current market volatility, start by identifying your core holdings-the long-term anchors of your portfolio with steady performance and predictable earnings. These are the foundations of your investments. Next, critically evaluate your satellite holdings or short-term bets to determine whether they remain valid or if better opportunities have emerged. Focus on sectoral tailwinds, even if valuations appear elevated, as sectors with strong growth visibility are more likely to rebound when sentiment improves. Additionally, keep an eye on sector rotation, prioritizing numbers over narratives. The speculative rally in SMEs and small caps is fading, so ensure any PE expansion in your stocks over the last couple of years is backed by robust EPS growth-otherwise, they may be fragile "eggs." If necessary, switch to stronger names without hesitation, as even fallen stocks with solid fundamentals offer better long-term prospects. Lastly, remember that sometimes the best course of action is to stay put and do nothing; market corrections often reward patience and a disciplined approach, as per Appala.

This is a time to act with clarity, not panic. Appala added, "The market correction offers an opportunity to separate the wheat from the chaff, focusing on resilience and growth potential. Whether you decide to hold, switch, or sit tight, the mantra remains: "Know what you own." Stay alert, stay informed, and most importantly-stay rational."

Moreover, Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services said, "The correction in the market has made largecap valuations reasonable. Nifty is now trading at around 19 times estimated FY 26 earnings. Therefore, long-term investors, who can ignore the volatility caused by FII selling, can use the dips to buy high quality largecaps. The bounce back of this segment is only a question of time."