The stock market opened in the red on Monday, with the S&P BSE Sensex plunging over 700 points and the NSE Nifty50 losing nearly 300 points in early trade. This sharp decline comes despite the recent Budget announcements, which were anticipated to provide support to the market. However, global factors, including new trade tensions and foreign investor activity, are continuing to weigh heavily on market sentiment.
By 10 AM, the Sensex had dropped by 707.67 points to 76,798.20, and the Nifty50 had fallen by 242.55 points, standing at 23,239.60. All sectoral indices were trading in the red, with the exception of the Nifty consumer durables index, which received a boost from the tax relief provided by the Finance Minister in her recent budget speech. This indicates that while some sectors have benefitted from specific measures, the broader market remains under pressure.
The market’s decline has been attributed to a combination of factors. One of the most significant contributing factors is the renewed trade tensions between the United States and its major trading partners. Over the weekend, the US imposed a fresh set of tariffs on imports from Mexico, Canada, and China, which have caused alarm in global markets. These tariffs include a 25% tariff on Mexican and Canadian goods and a 10% tariff on Chinese imports. The imposition of these tariffs has reignited fears of an escalating trade war, which has the potential to disrupt global trade and economic growth. This uncertainty surrounding international trade has caused a ripple effect in financial markets worldwide, including India, even though the country is not directly involved in these specific tariff measures.
Despite India’s relative insulation from these trade measures, the market is still feeling the negative impact of heightened global uncertainty. Investors are particularly concerned about the potential for further tariffs and retaliatory measures that could harm global supply chains and trade flows. Aditya Gaggar, Director of Progressive Shares, pointed out that although India may not be immediately impacted by these tariffs, the broader global sentiment is influencing Indian markets. He added that investors are also reacting to the changes introduced in the Budget, with particular attention now focused on the upcoming MPC (Monetary Policy Committee) meeting, where any changes to monetary policy could further shape market outlooks.
Adding to the pressure on Indian markets is the sustained selling activity by Foreign Portfolio Investors (FPIs), which has been observed in recent months. In January 2024 alone, FPIs sold nearly Rs 1 lakh crore worth of Indian equities, reflecting a significant pullback in foreign investment. This selling pressure has continued after the Budget, with investors closely watching how FPIs will respond to the current market conditions. Kranthi Bathini, Director of Equity Strategy at WealthMills Securities, emphasized the importance of FPI behavior in the coming days, stating that their actions will be crucial in determining whether the markets can recover or if the downward trend will continue. He also noted that Trump’s tariff announcements have added additional strain to an already fragile market.
Another critical factor contributing to the market’s decline is the performance of the Indian rupee, which has fallen to an all-time low against the US dollar. On Monday, the rupee hit a record low of Rs 87.07 against the dollar, a drop that was fueled by the new trade tensions and the strength of the US currency. The US dollar has been rising in value as a result of the tariffs, putting pressure on emerging market currencies like the rupee. As the US dollar strengthens, investors tend to move away from emerging market assets, seeking safer havens in the form of US assets or other currencies. This dynamic has led to an increase in Foreign Institutional Investor (FII) outflows from India, further compounding the market’s woes.
The rupee’s decline has been one of the key factors in driving investor caution, as a weaker currency can lead to higher inflation and a potential increase in import costs, which could have broader implications for the economy. The weakening of the rupee also makes it more expensive for Indian companies to repay foreign debt, which could lead to increased financial strain for some firms. Traders are anticipating further weakness in the rupee, and many are bracing for more selling pressure in the Indian markets as a result.
The strengthening of the US dollar is one of the most significant drivers of the FII outflows from India. With the dollar index rising above 109.6, the US currency has become more attractive to global investors. A stronger US dollar typically leads to a reduction in investment flows to emerging markets, as investors seek safer assets in developed economies. Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, explained that despite a positive Budget, the Indian market is under pressure due to global factors, particularly the tariffs and the rising uncertainty in international trade. He also pointed out that the ongoing tariffs on Mexico and Canada could be seen as a precursor to similar actions against other countries in the future, further complicating global trade dynamics. Additionally, the rise in the US dollar has contributed to more FII selling in India, adding to the downward pressure on the market.
Although the Budget announced several measures aimed at supporting the economy, including tax relief in specific sectors, it has not been sufficient to offset the negative global factors. The market remains in a state of heightened volatility, with investor sentiment largely shaped by the developments in global trade and currency markets. While the Indian government has made efforts to support sectors such as consumer durables, the broader market remains vulnerable to external shocks, and the focus is now shifting to the MPC meeting, where investors hope to gain insights into the future direction of monetary policy.
The overall outlook for the Indian stock market remains uncertain as global economic tensions continue to create headwinds for domestic growth. While the Indian government has implemented measures to support the economy, the ongoing trade tensions and currency fluctuations are likely to keep investors on edge in the short term.
