Sensex crashes 800 points, Nifty drops below 24,650; why is Indian stock market falling? Explained with 5 key factors
A massive selloff engulfed the domestic stock market a day after US President Donald Trump slapped a 25 per cent tariff on most Indian imports to the US.
The Sensex opened at 80,695.50 against its previous close of 81,481.86 and plunged nearly 800 points, or 1 per cent, to an intraday low of 80,695.15. The NSE counterpart Nifty 50, after opening at 24,642.25 against its previous close of 24,855.05, crashed almost 1 per cent to an intraday low of 24,635.00.
The selloff was more intense in the mid and small-cap segments as the BSE Midcap and Smallcap indices plunged up to 2 per cent.
Investors lost over ₹ 3 lakh crore within the first 10 minutes from the opening bell as the overall market capitalisation of BSE-listed firms dropped to nearly ₹ 449 lakh crore from more than ₹ 452 lakh crore in the previous session.
Track all live updates of the Indian stock market here
Experts highlighted the following five key factors behind the stock market selloff:
US President Donald Trump imposed a 25 per cent tariff and a penalty on India for buying Russian oil, effective August 1.
Experts believe a 25 per cent tariff on Indian imports to the US may weigh on the Indian stock market sentiment. If tariffs stay at this level for a longer period, it will impact the country's GDP growth and weaken its currency, further impacting foreign capital inflow.
"The higher tariffs on India versus expectations could potentially weigh on capital flows. FII flows have now become critical in shaping market outcomes amid heavy promoter selling and slowing DII flows. The direct impact is likely to be on stocks/sectors where the US sets the marginal price –pharma, auto ancillaries, a few industrials, cables and wires, tiles, etc.," said Nuvama Institutional Equities.
"However, the indirect impact of capital flight is likely to be more dominant and could weigh on SMIDs and high-beta domestic cyclicals (real estate, NBFCs and industrials). On the other hand, an INR depreciation could help IT, and it could potentially outperform given the now low relative valuations. Overall, maintain a cautious stance on markets," the brokerage firm added.
Another key factor that added to the pessimism in the market is the lack of hints from the US Fed on rate cuts starting coming months.
While the US Federal Reserve maintained the federal funds rate in the range of 4.25 per cent to 4.50 per cent on expected lines, the central bank did not give any clear signal that rate cuts may begin any time soon.
Some experts believe rate cuts may begin after one or two quarters.
"It may take more than one or two quarters—possibly even longer—before the Fed begins easing. Over the past two months, tariffs have been on the rise, and their impact is expected to come with a lag. The September–October period will be crucial to observe how these tariffs affect US inflation," said G Chokkalingam, the founder and head of research at Equinomics Research Private Limited.
Market participants appear concerned that elevated interest rates for a longer period may keep the US dollar and bond yields up, which can affect the foreign capital inflow in emerging markets like India.
Massive foreign capital outflows have been one of the main reasons behind the Indian stock market's recent downtrend.
Foreign portfolio investors (FPIs) have sold Indian equities worth over ₹ 42,000 crore in the cash segment in July so far (till July 30).
FPIs have been selling Indian stocks as the market valuation is stretched, the rupee has weakened, and earnings have remained soft.
(This is a developing story. Please check back for fresh updates.)
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Read more stories by Nishant Kumar
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
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