The Indian stock market has taken a notable hit, primarily attributed to the significant factors stemming from the recently announced Union Budget 2025. The BSE Sensex and Nifty 50 indices endured substantial declines following major external pressures, particularly the new tariffs imposed by US President Donald Trump on imports from Mexico, Canada, and China.
At the close of trading on February 3, 2025, the BSE Sensex plummeted to 76,843.16 points, down 663 points or 0.86%. Meanwhile, Nifty 50 also fell, closing at 23,266.05, marking a decrease of 216 points or 0.92%. Both indices displayed signs of considerable distress, with investors witnessing about Rs 6 lakh crore wiped off from market capitalization within just one trading session.
According to reports, the downturn is largely rooted in President Trump's recent tariff decisions, imposing hefty levies of 25% on imports from Mexico and Canada, and 10% on Chinese goods. These tariffs, slated to take effect shortly, have escalated fears of heightened trade wars impacting global markets. The immediate ramifications were felt across the Indian market, as investors grappled with the potential fallout from increased trade tensions.
This decline can also be linked to investor sentiment reacting to the Union Budget presented by Finance Minister Nirmala Sitharaman on February 1, 2025. The Budget marked her eighth consecutive presentation but apparently missed market expectations, with its focus shifting decidedly toward consumption and savings rather than capital expenditure—specifically concerning infrastructure projects. This redirection may signal troubling trends for potential investors, who had anticipated greater measures to bolster infrastructure growth.
The reaction from investors has been stark, particularly those relying on Foreign Institutional Investors (FIIs). Data from the previous month indicated substantial selling activity, with FIIs offloading ₹1,327.09 crore worth of Indian equities just the day prior to the budget announcement. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, highlighted the broader repercussions of the tariffs observed on Indian stocks, noting, "It is important to understand...Trump may use tariffs again against other countries on non-trade issues," emphasizing potential future risks.
Additional economic indicators reflect pressure on the market, including the rupee's significant decline, which reached an all-time low against the dollar, trading at approximately 87.29. Such pressures have driven foreign investment sentiment lower, with many investors remaining cautious as the dollar index surged. This spike above 109.6 potentially incentivizes more continuous selling by FIIs, exacerbated by market volatility.
Motilal Oswal Financial Services pointed out the disconnect evident in the Budget stance. An analyst stated, "We need to keep a ke... if it suggests a change in the paradigm," highlighting concerns at the potential shift away from historical spending trends on infrastructure to more immediate consumer-based solutions. This skepticism among analysts and investors contributes to the fears, encapsulated by continuous observations of declining key stock sectors.
Oh, and it wasn’t just foreign investors feeling triggered—domestic investors mirrored the trend, leading to significant losses across major sectors. The top losers included heavyweights like Larsen & Toubro, which saw declines of 4.64%, and Hindustan Unilever, plummeting by over 2.62%. The sell-off extended across sectors, with the Oil & Gas index falling the hardest, indicating widespread bearish sentiments.
Despite the losses, some segments did witness gains, particularly those less affected by tariff fears. Bajaj Finance showed resilience, rising 5.28%, and supporting sectors such as IT also performed relatively well. This fluctuation amid capsized stock performance reveals investor behavior swayed by announcements and external economic indicators.
Looking forward, the market's future appears bleak without immediate corrective measures. Technical analysts forecast key resistance levels, noting significant pressure remains at the Nifty 50’s 200-day exponential moving average. Rupak De, Senior Technical Analyst at LKP Securities, stated, "The index has support at 23,280 and as long as it stays above this level, the overall trend is likely to remain positive," solidifying concerns about exceeding this mark.
Overall, the post-Budget timeline poses considerable uncertainty. With the Reserve Bank of India's Monetary Policy Committee (MPC) meeting on the horizon, hopes for stabilizing moves such as interest rate cuts linger, aimed at stimulating growth. Investors are left cautiously optimistic, continuing to monitor market reactions, tariffic pressures, and economic signals arising from the budget.