Stock Market Volatility: Is Bull Run Still On? Will Nifty, Sensex Zoom To New Heights In 2025? Experts Decode

The Indian stock market began 2025 on a mixed note, with the benchmark indices Sensex and Nifty oscillating between gains and sharp losses during the first week. From a promising rally on January 2 to a dramatic plunge on January 6, the markets reflected fragile sentiment fueled by domestic and global factors.

A Rocky Start to 2025 for Indian Markets
On January 1, the Sensex closed at 78,579.72, up 440.71 points (+0.56%), and the Nifty ended at 23,742.90, rising by 98.10 points (+0.41%).

The rally gained momentum on January 2, with the Sensex surging 1.79% to close at 79,910.44, adding an impressive 1,403.03 points. Similarly, the Nifty climbed 1.88% to settle at 24,188.65.

A Steep Fall
By January 6, the optimism reversed sharply as the BSE Sensex plunged 1,263.16 points (-1.59%) to close at 77,959.95. The Nifty also tumbled 374.75 points (-1.56%), ending the day at 23,630.00. The broader sell-off spanned all sectors, with the Nifty Bank index falling 1.81% to 50,066, while the India VIX fear gauge surged over 15%, signalling heightened volatility.

What’s Driving the Volatility?
1. Emergence of HMPV Cases

The emergence of three confirmed cases of the Human Metapneumovirus (HMPV) in India exacerbated market jitters. Market veteran Ajay Bagga explained, “The announcement of HMPV cases seems to have hurt market sentiments even more. Whether the HMPV represents a real threat or it’s another case like MPox that saw some numbers and then got over, only time can tell.”

Sugandha Sachdeva, Founder of SS WealthStreet, added, “While the news triggered a knee-jerk reaction in the market, its broader impact is expected to be limited. India appears well-prepared to handle such health concerns, and the virus is not considered lethal.”

2. Persistent FII Outflows
Foreign institutional investor (FII) outflows have been a significant drag on market sentiment. Sachdeva noted, “In just the first three trading sessions of the year, FIIs have sold Rs.4,285 crores on a net basis. Over the last quarter, FIIs withdrew Rs.114,445.89 crores in October, Rs.45,974.12 crores in November, and Rs.16,982.48 crores in December 2024.”

Bagga highlighted that the returns in Indian markets are failing to attract foreign investments. “With US money market funds delivering virtually risk-free returns of 4% to 4.5% in US dollar terms, the dollar returns from Indian markets are not justifying the risk. This, coupled with weak fundamentals, has led to sharp corrections,” he said.

3. Global Economic Pressures
Rising oil prices, a strengthening US dollar, and higher US bond yields have weighed heavily on emerging markets, including India. Geoff Dennis, an independent emerging markets commentator, stated, “Rising US bond yields and a rising dollar have not been favorable for EM as a whole. India is particularly vulnerable to rising oil prices.”

He also added, “ I do not see the weaker INR as being a big factor as the Indian currency has drifted lower (as the U.S. dollar has risen) rather than crashing as other EM currencies have done in recent months. “

The US dollar’s climb to a two-year high of 109 has pressured Asian currencies, making regional investments less attractive for foreign investors. Sachdeva emphasized, “The strengthening US dollar and rising US yields have reduced the attractiveness of Indian markets for foreign investors.”

4. Rotation in Emerging Markets
A shift in investment focus from emerging market winners like India and China in 2024 to underperformers like Brazil and Mexico has further impacted the market. Dennis commented, “One other factor seems to be the suggestion of the start of a rotation from some of the EM winners last year notably China and India - although not Taiwan so far - to some of the big losers of 2024 such as Brazil and Mexico which suggests that valuation concerns are increasing in the Indian equity market as we enter the new year.”

What Lies Ahead?
Experts believe the volatility is likely to persist in the coming weeks. Bagga noted, “A good, market-friendly budget and an RBI rate cut could help sentiment. Once there’s clarity on Trump 2.0 policies by early February, we could see better sentiment.”

Sachdeva highlighted the importance of the upcoming Q3 earnings season and global economic events. “The upcoming Q3 earnings season will be a crucial determinant for market direction. Key events, including the FOMC minutes, US jobs report, and the Fed’s policy meeting, will also influence market sentiment. For now, cautious, sector-specific investments, particularly in pharma and infrastructure, may provide safer havens in these volatile times,” she said.

As the Indian stock markets navigate the ups and downs of the new year, a combination of domestic challenges and global uncertainties continues to shape investor sentiment. While experts remain hopeful for recovery in the medium term, cautious optimism and sectoral focus are key to weathering the current volatility.