Market Slump: Bears Halt New Year Rally as Sensex Falls 600+, Nifty Hits 24,000

The New Year rally in frontline equities faced a setback on Friday as key indices slid, weighed down by declines in banking and IT stocks.

The Sensex dropped by 668.94 points (0.83%) to close at 79,274.77, while the Nifty fell by 188.4 points (0.8%) to settle at 24,000.25.

This downturn reversed the 2.3% gains recorded during the first two trading days of 2025, driven by a combination of global and domestic pressures that dampened investor confidence ahead of the upcoming earnings season.

Key Drivers of Market Decline

• Crude Oil Price Surge: Global crude oil prices spiked, with Brent crude futures rising by $1.29 (1.7%) to $75.93 per barrel. The rally in oil prices was fueled by optimism surrounding China’s economic rebound following President Xi Jinping’s growth-focused pledge. Rising crude prices heighten inflation concerns for oil-importing nations like India, affecting market sentiment negatively.
• Unfavorable Macroeconomic Indicators: Macroeconomic challenges persist, as seen in the dollar index rising to 109.22 and U.S. 10-year Treasury yields reaching 4.56%. This environment tends to deter foreign institutional investor (FII) inflows, making emerging markets like India less attractive.
• Muted Prospects for U.S. Rate Cuts: Recent U.S. economic data pointed to a robust labor market, reducing the chances of significant rate cuts by the Federal Reserve. The Fed has adjusted its projections to two rate cuts in 2025, down from the previously anticipated four.

According to the CME FedWatch Tool, markets currently estimate an 88.2% probability of a rate pause in January.

Higher interest rates in the U.S. reduce the appeal of Indian markets for foreign investors. IT giants like TCS and Infosys experienced notable losses due to their heavy reliance on U.S. revenues. "The pullback in IT stocks and broader indices was expected after the sharp rise in previous sessions," remarked Aditya Gaggar, Director at Progressive Shares, in an interview with Reuters.

Technical Outlook

Analysts have highlighted 24,000 as a critical support level for the Nifty. Ajit Mishra, Senior Vice President of Research at Religare Broking Ltd, cautioned that breaching this threshold could trigger a sideways trend, potentially increasing market volatility.

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