The Indian stock market has been experiencing turbulence, with the BSE Sensex and Nifty50 indices plunging approximately 3% over the last five trading sessions. This notable decline has sent shockwaves through Dalal Street, with major sectors such as banking, automotive, metals, and IT leading the sell-off. Over just five days, equity investors have seen their wealth shrink by about Rs 16.97 lakh crore, prompted largely by external trade policy concerns from the U.S. and persistent foreign fund withdrawals.
Specifically, the BSE benchmark index has fallen by 2,290.21 points, amounting to a significant decline of 2.91% during this time period. The overall market capitalization of listed companies on the BSE has tumbled to Rs 4,08,52,922.63 crore (USD 4.70 trillion) as of the latest figures, marking another painful indicator of investor sentiment. The market's woes were starkly illustrated in one trading session alone, which saw Rs 9,29,651.16 crore wiped out from investors' portfolios.
Vinod Nair, Head of Research at Geojit Financial Services, elucidated the core reasons behind this market turmoil. He identified the uncertainty surrounding U.S. trade policies and tariffs, combined with domestic economic growth concerns, as significant factors contributing to the negative sentiment.
"The mid- and small-cap stocks experienced significant declines due to demand worries and high valuations," Nair stated. He added, "Although the RBI’s intervention provided some recovery for the rupee from its recorded low, it remains under pressure, which is likely to keep the market volatile for the near term." Investors are hoping for insights during Prime Minister Modi's anticipated visit to the U.S. to address trade uncertainty. Meanwhile, U.S. inflation data is also under scrutiny, as it could provide clues for future market movements.
Key incidents influencing the market include U.S. President Donald Trump’s announcement of a uniform 25% tariff on steel and aluminum imports. This policy, aimed at boosting domestic industries, has raised fears of retaliatory measures and wider trade conflicts. The U.S. administration has canceled all previous exemptions, creating widespread concern among international trading partners.
"Trump's latest decision will impact countries like Mexico, Brazil, South Korea, and Vietnam the most. Metal prices will remain soft for the foreseeable future," remarked Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Adding to the market's troubles is the anxiety surrounding Federal Reserve Chair Jerome Powell's upcoming address. Investors are carefully analyzing any shifts implied by his statements concerning tariffs and inflation, as monetary policy changes could have far-reaching consequences.
Foreign institutional investors (FIIs) have withdrawn an astounding $9.94 billion from Indian equities this year according to the NSDL, intensifying market pressure. The rising yields of U.S. Treasury bonds, particularly the 10-year yield at 4.495%, combined with the strengthening dollar, have spurred capital flight from Indian markets.
Even though large-cap stocks maintain relative stability, mid-cap and small-cap stocks are facing steeper declines. Retail investors find themselves grappling with losses and reconsidering their investment strategies amid the uncertainty. Experts are advising patience and suggest focusing on fundamentally strong large-cap stocks, particularly those within the banking, IT, and automotive sectors.
Data shows the Nifty Mid-cap and Small-cap indices have fallen significantly more at 8.6% and 11.3%, respectively, compared to the Nifty50’s 1.52% loss this year. Dr. Vijayakumar encourages exploiting this weakness as it presents new opportunities:
"When FIIs return to being buyers, they will be targeting the large-caps they are currently selling off," he said.
Technical indicators reveal bearish signs as well. The Nifty’s decline below 23,200 has undermined recovery prospects. Ajit Mishra of Religare Securities evaluated the situation, highlighting the likelihood of testing the 22,800 level but alerts investors to manage positions cautiously, especially among mid-cap and small-cap stocks currently facing heavy selling pressure.
Overall, the sentiment among investors remains somber, with many offloading their equity holdings due to the dismal earnings reports and fears of subdued government spending. Prashanth Tapse, Senior VP (Research) at Mehta Equities, emphasized, "The uncertainty surrounding tariffs and poor economic indicators is causing apprehension among investors, prompting them to retreat from the market."
While the macroeconomic environment paints a troubling picture, experts suggest it's too early for panic. Retail investors are advised to adopt sound risk management practices and may find value opportunities within large-cap stocks as the market adjusts to these challenges. Engaging with informed financial advisors can also help navigate the current market barrage effectively and strategically.