The Indian stock market witnessed a sharp crash on Tuesday, with the Sensex plummeting over 1,000 points and the Nifty dropping more than 300 points. This marked the fifth consecutive session of losses and the biggest single-day decline in the past three weeks. Investors collectively lost nearly ₹10 lakh crore as selling pressure intensified across all sectors. The broader markets also took a hit, with the BSE Midcap index falling by 3.02% and the BSE Smallcap index dropping by 3.45%. All sectoral indices closed in the red, with auto, consumer durables, capital goods, oil and gas, energy, FMCG, healthcare, power, PSU, and realty sectors witnessing declines between 2% and 3%.
Among the biggest losers in the Nifty were Apollo Hospitals, Eicher Motors, Shriram Finance, Coal India, and Bharat Electronics. However, a few stocks, including Adani Enterprises, Trent, Bharti Airtel, and Grasim Industries, managed to post gains.
One of the key reasons behind the market crash was renewed concerns over global trade tensions after former US President Donald Trump hinted at imposing reciprocal tariffs on imports, including steel and aluminum. Trump has significantly raised tariffs on these commodities, revoking exemptions and duty-free quotas for major suppliers such as Canada, Mexico, and Brazil. This move triggered fears of a trade war, unsettling investor sentiment across global markets. Rajesh Sinha, a research analyst at Bonanza, noted that the negative market sentiment was largely driven by worries surrounding Trump's tariff announcement, which has sparked concerns about potential trade conflicts and inflation.
Another major factor weighing on the markets was the weakness of the Indian rupee, which hit a record low of 88 per US dollar on Monday before making a slight recovery. A depreciating rupee makes foreign investments less attractive, leading to increased selling pressure from Foreign Institutional Investors (FIIs). Data shows that FIIs have pulled out ₹12,643 crore from Indian equities in February alone, following massive outflows of ₹87,374 crore in January. Sandip Agarwal, Fund Manager and Co-Founder of Sowilo Investment Managers LLP emphasized that the sharp decline in the market was primarily driven by the rupee's depreciation, as FIIs intensified selling to protect their returns.
The Reserve Bank of India (RBI) intervened in the forex market to stabilize the rupee, but volatility remains high. Market participants are now closely watching US inflation data and Federal Reserve Chair Jerome Powell’s testimony for further indications on interest rate movements.
Adding to the bearish sentiment, several major companies posted weaker-than-expected Q3 earnings, further denting investor confidence. Eicher Motors saw its stock plunge by 7% after reporting lower-than-expected profits and margins for Q3 FY25, citing rising costs and sluggish sales of high-margin motorcycles as key factors affecting its performance. Disappointing corporate earnings have raised concerns over India's economic growth outlook, prompting investors to reduce their market exposure.
The broader market was also impacted by concerns over stretched valuations, particularly in mid- and smallcap stocks. The BSE Midcap index fell 3.02%, while the BSE Smallcap index dropped 3.45%, signaling heavy selling pressure in this segment. Last week, ICICI Prudential AMC’s CIO S. Naren had warned that mid- and smallcap stocks were trading at "absurd" valuations and advised investors to exit these stocks, triggering a wave of panic selling. Aditya Gaggar, Director at Progressive Shares, pointed out that the real pain was evident in the broader markets, where technical indicators remain weak, and every upward movement is met with further selling pressure.
The combination of global trade uncertainties, rupee depreciation, weak corporate earnings, and valuation concerns in mid- and smallcap stocks led to a steep decline in the market. Investors are now looking for cues from global events, particularly the US Federal Reserve’s stance on interest rates, which could impact liquidity flows into emerging markets like India.
