The Indian equity markets have entered a sustained corrective phase that commenced in September 2024, with market experts anticipating continued volatility through 2026. This ongoing correction reflects broader structural challenges facing investors in the current economic environment.

Market Correction Timeline

The correction phase that began in September 2024 has been characterized by persistent downward pressure on equity valuations. Market participants are observing that the current cycle differs from previous corrections due to the underlying valuation concerns that have built up over recent periods.

Valuation Concerns Drive Market Volatility

A critical factor contributing to the amplified market movements is the elevated valuation levels across various segments of the Indian equity market. These high valuations are creating a situation where each market move tends to get magnified, leading to more pronounced corrections compared to historical patterns.

The relationship between valuations and market volatility has become particularly evident during this correction phase, with investors becoming increasingly sensitive to any negative developments or sentiment shifts.

Global Factors and New World Order Impact

The current market environment is being influenced by what analysts describe as emerging dynamics in the global order, where geopolitical considerations are playing an increasingly important role in market movements. These international factors are contributing to the uncertainty that investors are facing in the near term.

Market participants are noting that the interconnected nature of global markets means that domestic corrections are often influenced by broader international developments and policy shifts.

Market Sentiment and Investor Response

The ongoing correction has created a divided sentiment among market participants, with different perspectives emerging on how to navigate the current environment. This division in market opinion is typical during correction phases, as investors reassess their strategies and risk tolerance levels.

The inevitability of corrections in any market cycle is being emphasized by market experts, though the current phase is notable for its duration and the specific factors driving the volatility.

The Indian financial markets faced significant pressure this week as the rupee touched a historic low and equity indices posted their steepest weekly decline in four months. The developments prompted intervention measures from the Reserve Bank of India to stabilize market conditions.

Rupee Touches All-Time Low

The Indian rupee fell to an all-time low of 91.93 against the US dollar on January 23, continuing its downward trajectory despite brief recovery attempts. Strong dollar demand from corporates and importers weighed heavily on the currency, pushing it dangerously close to the 92-mark even as global risk sentiment showed some improvement.

Equity Markets Post Worst Weekly Performance

BSE Sensex and NSE Nifty concluded their worst week in four months, with widespread selling pressure affecting investor sentiment. The benchmark indices experienced significant declines, with BSE-listed companies shedding an additional ₹16 lakh crore in market capitalization during the week. Overall market losses reached ₹15 lakh crore as Adani Group stocks led the decline, while the Nifty barely managed to stay above the 25,000 level.

RBI Announces Major Liquidity Support

Recognizing the market stress, the Reserve Bank of India stepped in with substantial liquidity measures. The central bank announced over ₹2 lakh crore of injections through bond auctions and scheduled a $10 billion forex swap for February 4 to provide market support.

Mixed Corporate Earnings Results

The third quarter earnings season presented contrasting performances across sectors:

Cipla reported disappointing results with EBITDA falling to ₹1,255 crore compared to ₹1,989 crore in the previous year, representing a 36.7% drop. The performance fell well below the CNBC-TV18 poll estimate of ₹1,696 crore, leading to a stock decline of over 4% as US sales narrowed and margins were impacted.

IndusInd Bank showed improved quarterly performance, posting a net profit of ₹128 crore, significantly higher than the CNBC-TV18 poll estimate of ₹42 crore. However, on a year-on-year basis, profit declined 90% from ₹1,402 crore due to elevated provisioning, though the bank's Net Interest Income topped estimates and NPAs remained stable.

International Developments

Several significant international developments impacted market sentiment during the week. A 90-member EU delegation arrived in India to advance long-pending Free Trade Agreement negotiations, even as the EU withdrew export benefits on a substantial portion of Indian shipments. Bank of America's CEO expressed bullish views on both Indian and US economic prospects, while TikTok finalized a joint venture agreement for its American operations to address regulatory concerns.