The market saw complete bloodshed today, with extreme volatility. There were many upswings and downswings of several hundred points from morning till afternoon, completely smashing intraday traders and, of course, long-term investors. The pain has worsened, with many stocks down by 8 to 10% despite reporting great results. This highlights a common scenario where stocks often price in news well before it arrives, and when the news finally comes, it results in a “sell on news” event.

It’s certainly a disappointing day for long-term investors. The market took a big fall, and the reason could be linked to Trump or simply because we were waiting for a correction, possibly triggered by his announcement.

Where is the market headed?

Market Overview

Today, the market formed a very clear bearish engulfing candle. This kind of candle, which engulfs the last six sessions, indicates that more pain could be on the way. While there’s no certainty, there’s a 75% probability that the market could see further declines. There’s only a small chance that the market won’t go down any further and might just reverse here. However, that’s not typical when you see big bearish engulfing candles. The reality is that we’ve been falling for more than three months, and at some point, natural counter-reactions will likely occur. This could happen sometime between now and the 1st of February, around the time of the budget announcement, or even after the budget if the outcome isn’t positive. But, because the market is positioning itself for the worst, there may be some sort of relief rally.

Earlier this morning, it felt like, after Trump’s inauguration, there wouldn’t be any immediate tariffs. However, when he spoke to reporters, he mentioned the possibility of a 100% tariff on BRICS nations. Although no specific tariff has been announced, the market has already given up, factoring in the fear that something might happen. There’s also a lot of talk about the H1B visa program not progressing toward permanent residency and many H1B holders not being able to secure citizenship for their children, leading to an uncertain period until things stabilize.

Nifty Next 50

The Nifty dropped 1.37%, while the Nifty Next 50, a higher-beta version of the Nifty, collapsed by 2.6%. All the gains made in the last four sessions were wiped out today.

Nifty Mid and Small Cap

The mid-cap space was also hit hard, dropping nearly 2%, while small caps fell by 2.12%. No sector or segment was spared from the bloodbath.

Nifty Bank Overview

Even the Bank Nifty, despite yesterday’s strong performance, was down by 1.58%. FIIs (Foreign Institutional Investors) continued to sell in large volumes, and there was a discussion today about the S&P 500 being up 25-26% over the last 12 months, while the Sensex or Nifty had only risen around 2% in US dollar terms. This underperformance in dollar terms is a natural deterrent for new capital to flow into the Indian market. A market that has given almost nothing in terms of returns over the past year doesn’t seem as attractive, especially with the rupee expected to weaken further, possibly reaching 90-95 to the dollar.

Advanced Declined Ratio Trends

In terms of market breadth, advances were rare today, with 77 advances to 422 declines, making it a seller’s day.

Nifty Heatmap

Reliance was down by 2.5%, ICICI Bank by 3%, State Bank by 2.6%, and HDFC Bank lost less. Kotak Bank fell by 1.4%, and stocks like Bajaj Twins, Maruti, Mahindra, Titan, Tata Motors, NTPC, and Trent were all heavily sold off. Even the Nifty Next 50 was entirely in the red, with stocks like Zomato down almost 11%, DLF and Lodha down in the real estate sector, and capital goods down by 3.5%. The market seemed to be in a complete push-down mode, attempting to find a new level of stability. We were fortunate to close at 23,000, but it’s uncertain if that level will hold.

Sectoral Overview

Sectoral data showed everything in red, with real estate taking the hardest hit, dropping by 4%. Over the past month, real estate has lost 14.5%, making it the biggest loser in that period. Other sectors such as energy, public sector enterprises, PSU banks, consumption, infrastructure, and autos all dropped more than 1.5%. The only sector that held up was FMCG, which managed near-zero moves on the day, week, and month, suggesting it might be nearing some sort of stabilization. Other sectors like autos were down by 1.2% and infra by 1.7% over the past month, while sectors like real estate, bank nifty, consumption stocks, IT stocks, and metals have dropped more substantially.

Energy, alongside FMCG, has entered the red zone, with private banking nearly joining them. A significant shift is happening where the last 12 months of performance, which looked relatively strong, are now facing headwinds. New investors, especially those coming through SIPs, will likely review the performance of the last 12 months before deciding to enter the market. This is the biggest risk for the market right now: the potential loss of enthusiasm for investing, especially when the returns have been underwhelming.

Sectors of the Day

Nifty Realty Index

Real estate, in particular, is breaking some important support levels on the charts. The last seven to eight months have been distributive in nature, and with these supports now broken, it could lead to further declines. Despite decent results from companies like Phoenix Mills, Prestige Estate, Macro Developers, and DLF, these stocks were down by 3% to 7% on the day.

Story of the Day : The Big Fall

The big fall in the markets today can be attributed to a combination of factors, including Trump’s potential policies and the death cross on the Nifty, which we discussed yesterday. The previous low of 23,050 has also been breached, leaving no immediate support in sight. However, the market is oversold, so today’s price action could have been a liquidation event. Such events often happen when the market is volatile, and buyers at different levels are forced to sell off positions by the end of the day. Tomorrow, we’ll know whether this downtrend sustains or not.

The potential for tariff hikes has been discussed for some time, but no executive orders have been passed yet. Trump’s statement about a 100% tariff on BRICS nations, and his mentioning of Spain as a BRICS nation, has certainly created some nervousness in the markets. Trump’s stated goal is to bring manufacturing jobs back to the U.S., particularly in industries like automotive, technology, and pharmaceuticals, which could hurt foreign countries like China. If anything, Trump’s past policies during his presidency had a positive impact on markets, with sectors like financial services and real estate doing well. The broader market index also saw a 15% gain during his tenure, while sectors like PSU banks and public sector enterprises did not perform as well.

Looking ahead, the rupee remains a wildcard. Until there’s stability, new capital may not flow into India, especially with expectations that the rupee could weaken further. The US dollar index has been strong, and this can lead to capital outflows. If the US offers a 5% return on risk-free assets, why would investors put their money into India, especially when the rupee is expected to depreciate? The strength of the dollar could continue to push capital out of emerging markets.

Crude oil prices are another risk. While there’s been a push for increased US oil production, if Trump fails to secure peace in the Middle East or push for higher drilling, crude prices could continue to rise, hurting India. Crude oil is currently at a breakout level, and if it rises above $80 on Brent oil, it could create more headwinds for the Indian economy.

Sectors to watch right now include US healthcare, where the ballooning budget may face cuts, and tariffs on pharma exports could affect Indian companies. There’s also fear surrounding IT stocks, as stricter offshore outsourcing policies may come into play. Metals may benefit from an anti-China stance, but for now, there hasn’t been significant movement in this space. Energy stocks could also face challenges with Trump’s anti-ESG stance, particularly for companies involved in exporting solar modules to the US.

There’s a general sense of uncertainty in the market, and over the next few weeks, things should become clearer. In the meantime, it’s important to stick to a strategy, whether that’s momentum or trend-following, or simply sitting in cash in some cases. You don’t want to try to time the market or make drastic moves. If you’re a long-term investor, patience is key. Markets go through rough patches, but if you stay the course, things tend to recover in the long run.

In conclusion, despite the pain in the short term, it’s essential to keep your focus on the long-term horizon. Markets have faced worse times in the past and have recovered. Your behavior and psychology, along with a solid understanding of market cycles, will help you stay on track. Don’t get swayed by short-term noise or predictions—stick to your path and make decisions based on strategy, not emotion.

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