The domestic equity benchmarks plunged on Tuesday, shaken by growing uncertainty over US President Donald Trump’s trade policies, which deepened investor concerns in a market where sentiment is already weighed down by subdued December quarter results from India Inc and heavy foreign outflows.
The Sensex closed at 75,838, shedding 1,235 points or 1.6 per cent, while the Nifty 50 ended at 23,025, down 320 points or 1.4 per cent. These declines marked the steepest falls for the Sensex since October 3 and for the Nifty 50 since January 13.
Both indices reached their lowest closing levels since June 6, 2024. Also, the Nifty 50 slipped below 23,000 for the first time since June 7 in intraday trade.
India’s volatility index (VIX, based on the Nifty index option prices), often referred to as the “fear gauge”, jumped nearly 4 per cent to 17.1— the highest level since August 6 last year.
The index has surged 18 per cent this month, underscoring heightened anxiety in the market.
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Tuesday’s selloff shaved Rs 7.5 trillion off the total market capitalisation of BSE-listed firms, bringing it down to Rs 424 trillion ($4.91 trillion). India’s market cap, which slipped below $5 trillion on January 13, has declined by Rs 18 trillion or $260 billion since the start of January.
From their all-time highs on September 26, 2024, the Sensex has dropped 11.6 per cent and the Nifty 12.2 per cent.
Trump’s statements on trade tariffs have unnerved investors globally. After taking office as the 47th US president, he threatened to impose 25 per cent tariffs on Mexico and Canada as early as February 1, prompting fears of widespread trade disruptions. In his inaugural address, Trump pledged to prioritise tariffs and taxes on foreign nations to benefit Americans.
He reiterated his warning of imposing 100 per cent tariffs on BRICS nations, including India, if they take steps to challenge the US dollar’s dominance. “If the BRICS nations want to do that, that’s fine, but we will impose at least a 100 per cent tariff on the business they conduct with the United States,” he said.
The prospect of sweeping trade measures, which could stoke US inflation and complicate Federal Reserve rate cuts, has driven up US bond yields and strengthened the dollar. This, in turn, has triggered a selloff in equity markets worldwide, as foreign investors redirect funds into US debt instruments.
On Tuesday, foreign portfolio investors (FPIs) were net sellers in India to the tune of Rs 5,920 crore. For January so far, FPIs have offloaded domestic equities worth Rs 52,453 crore ($5.4 billion). Experts attribute this exodus to India’s pricey stock valuations and a subdued earnings season, which followed an already weak September quarter.
Investors are now pinning their hopes on next month’s Union Budget, which they expect to deliver measures to revive demand.
As of now, Trump hasn’t said or done anything particularly damaging towards India. The Indian economy is clearly in a cyclical downturn, and the results season validates this further,” said Saurabh Mukherjea, founder of Marcellus Investment Managers. “Unless the Budget introduces measures to reinvigorate economic growth, 2025 could be a tough year for both economy and equity markets.”
The breadth of the market was weak, with 2,881 stocks declining against just 1,106 advancing.
Siddhartha Khemka, head of research and wealth management at Motilal Oswal Financial Services, said: “The markets are likely to remain under pressure in the near term amid mixed quarterly results and heavy FPI selling. Investors will be closely monitoring the Q3 earnings of heavyweights. Midcap IT stocks will be in focus, with Coforge and Persistent Systems set to announce results tomorrow.”
Technical analysts pointed to further downside risks. Om Mehra of Samco Securities highlighted a slew of bearish indicators, including the volatility index surge, the Nifty slipping below its nine-day exponential moving average (EMA), and the daily relative strength index (RSI) dropping to 35.
At this juncture, bottom fishing should be avoided as the market remains vulnerable. It is prudent to wait for clear signs of stabilisation or reversal,” said the technical analyst.
He said 22,800 is a crucial support level to monitor for the Nifty 50.