Markets, spooked by Fed uncertainty, post biggest drop in two months

BSE market cap shrinks ₹7 trillion as FPIs weigh on sentiment

Equity markets fell on Monday, with benchmark indices recording their worst session in over two months amid caution ahead of the US Federal Reserve’s (Fed’s) policy announcement and renewed uncertainty over the US-India trade deal. Sustained selling by foreign portfolio investors (FPIs) also weighed on sentiment. 

After dropping 837 points intraday, the Sensex ended 610 points, or 0.7 per cent lower at 85,103, while the Nifty fell 226 points, or 0.9 per cent, to 25,961. For both indices, this marked the steepest single-day decline since September 26. Broader markets saw sharper cuts, with the Nifty Midcap 100 down 1.83 per cent and the Nifty Smallcap 100 falling 2.6 per cent. 

The total market capitalisation of BSE-listed companies shrank by ₹7 trillion to ₹464 trillion.

 

Investor sentiment remained subdued as participants awaited the Fed’s policy decision. A rate cut by the US central bank typically boosts the appeal of emerging markets like India for FPIs, while a pause or hawkish stance often triggers outflows.

 

FPI selling has been a major drag on domestic equities this year — overseas investors have offloaded ₹1.5 trillion worth of Indian shares in 2025, including ₹11,837 crore in December, according to National Securities Depository data. On Monday, FPIs were net sellers of ₹656 crore, while domestic institutional investors were net buyers, picking up shares worth ₹2,543 crore.

 

“The market experienced a broad-based decline, slipping below the 26,000 mark as investors turned cautious ahead of this week’s Fed policy decision. Despite robust domestic growth and the Reserve Bank of India’s (RBI’s) recent rate cut, short-term sentiment remains overshadowed by global monetary policy concerns, persistent FPI outflows, and currency depreciation. Volatility was further amplified by a surge in Japanese bond yields to multi-year highs, sparking fears of a potential unwinding of the yen carry trade,” said Vinod Nair, head of research, Geojit Financial Services.

 

Indian equities have struggled through much of the year, weighed down by weak corporate earnings and trade tensions with the US. In August, Washington imposed an additional 25 per cent tariff, taking total duties on select Indian goods to nearly 50 per cent.

 

However, stocks had staged a recovery in recent months, aided by better-than-expected second quarter (July-September) results and renewed optimism over a trade breakthrough. A sectoral rotation out of artificial intelligence-linked names and growing expectations of a global easing cycle further whetted risk appetite. The RBI’s 25-basis-point repo rate cut last week also added to investor optimism. Still, lingering US tariff uncertainty has prompted profit-taking each time indices neared new highs.

 

“Any sustained move below 25,800 could take the Nifty down to 25,650, followed by 25,500. On the upside, the 26,150–26,200 zone is likely to act as strong resistance,” said Sudeep Shah, head of technical and derivatives research, SBI Securities.

 

Market breadth was sharply negative, with 3,460 stocks declining against 843 advancing on the BSE. Only three stocks ended with gains on both the Sensex and the Nifty.

 

IndiGo was the biggest Nifty laggard, dropping 8.6 per cent after reports that the aviation regulator had issued a notice following large-scale flight cancellations. The stock has fallen 17 per cent so far this month.