Stock Market Crash: ₹8 lakh crore wiped out in two hours post Midcap Meltdown, global weakness
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The Nifty 50 index is down over 200 points, slipping below the 23,000 mark for the first time after June 7. The index had closed at a six-month low last Friday. While the index is down 200 points and is looking for support at the 22,800 mark, the actual pain is being felt in the broader markets.
The Nifty Smallcap index is down over 4% on Monday, extending their drop to 15% from the peak that the index had hit on September 6 last year. The Nifty Midcap index is also down close to 3% or 1,500 points. 93 stocks on the Midcap index and 98 stocks on the Smallcap index are trading with losses on Monday.
The resultant fall in the broader markets has already wiped out ₹8 lakh crore in investor wealth in just the first two hours of the trading session. Here are some of the key factors behind the drop:
Global Market Weakness
Indian equities headed into the week after a weak handover from Wall Street. Although benchmarks on Wall Street saw only modest profit booking after a four-day rally, futures were indicating a sharp drop. As of 11 AM, Nasdaq futures are down nearly 500 points and that is courtesy of a Chinese AI start-up called DeepSeek, which has put the entire US AI rally in jeopardy. You can read more on that here.
Trump Tariff Uncertainty
While Donald Trump has threatened tariffs on China, Mexico and Canada starting February 1, he announced a 25% emergency tariffs on Colombia over issue of illegal migrants. Although the tariff moves were revoked in just a few hours after Colombia agreed to Trump’s terms, the move has put enough uncertainty in the minds of investors over how, when, and what quantum could tariffs be levied on any nation and later revoked.
Stock-Specific Issues In The Broader Market
Apart from the weakness in the global markets, there is also significant stock specific pain seen among midcap and smallcap stocks, mostly due to company specific issues and weak earnings.
Shares of CreditAccess Grameen fell as much as 17% on Monday, after the company yet again cut its guidance across parameters for the full financial year. More on that here. The stock though, has recovered from the lows of the day, but is down nearly 50% from its peak.
Laurus Labs shares fell as much as 15% over Donald Trump’s decision to withdraw from the World Health Organization (WHO) and the move to stop emergency funding programs, which can impact the company’s Anti Retroviral (ARV) sales, which comprise of nearly half the business. Details here.
CDSL shares also declined 9% post a weak quarterly performance on a sequential basis. Other recent underperformers like Kalyan Jewellers and Netweb Technologies also continued to decline amidst intense selling pressure. Kalyan Jewellers will be reporting results this week.
Brokerage firm InCred on January 21, cut its Nifty 50 target by 8% and also ascribed a bear case target of close to 21,000 levels, to factor in the growth slowdown and the recent EPS cuts.
Rahul Sharma of JM Financial sees 22,800 – 22,700 as an important support on the Nifty and he expects a bounce of 1,200 – 1,500 points on the index owing to the heavy shorts in the system.
