India's benchmark share market indices Sensex and Nifty crashed over 1.3 percent on Tuesday, extending losing streak for the fifth session in a row with the sharpest single day fall in three weeks. The markets were weighed down by escalating US trade tensions, President Donald Trump's tariffs, relentless foreign fund outflows, and weak corporate earnings. The broader market took a bigger hit, with BSE Midcap and BSE Smallcap indices plunging up to 3.5 percent each.
At close, BSE Sensex was down 1,018 points, or 1.3 percent, at 76,294, while NSE Nifty dropped 310 points to end below 23,100. The broader BSE Midcap index slumped 2.9 percent, and the BSE Smallcap index plunged 3.4 percent, reflecting deeper market concerns beyond the blue-chip stocks.
Trump’s tariff escalation sparks global fears
The sustained market decline follows US President Donald Trump’s move to expand tariffs on steel and aluminium imports, reigniting fears of a broader trade war. Trump’s executive orders, signed on February 10, increased aluminium tariffs from 10 percent to 25 percent and reinstated a 25 percent tariff on steel imports that previously entered the US duty-free. This escalation comes as exemptions for key trading partners like Canada, Mexico, and Brazil were revoked, sparking concerns over global economic growth.
Rupee volatility adds pressure to FII selling
The rupee’s continued weakness further pressured market sentiment, hitting a record low of 88 per US dollar intraday on Monday. "The decline in the market is primarily due to the rupee's depreciation. When the rupee weakens, foreign institutional investor (FII) selling intensifies because their real returns diminish," said Sandip Agarwal, Fund Manager and Co-Founder at Sowilo Investment Managers LLP.
However, today, the rupee recovered by around 21 paise to reclaim the 87 mark, helped by a likely intervention by the Reserve Bank of India (RBI). Despite this rebound, the broader trend remains weak, as the rupee has been Asia’s worst-performing currency this year amid nearly $9 billion of outflows from Indian equities.
Foreign investors have pulled out Rs 12,643 crore from Indian equities this month alone, adding to January’s massive Rs 87,374 crore sell-off. "The key concern right now remains rupee depreciation, closely tied to global economic conditions and Trump's policies," Agarwal added.
Weak earnings weigh on sentiment
Weak Q3 earnings also dampened investor sentiment. Shares of Eicher Motors plunged 7 percent after the company missed profit and margin estimates for Q3 FY25, dragged down by higher costs and declining sales of high-margin motorcycles. Similarly, Escorts Kubota shares slipped 5.3 percent after reporting weaker-than-expected earnings and issuing a cautious outlook for the coming quarters.
Global markets under pressure
Globally, equities remained under pressure as investor caution prevailed in the wake of Trump’s tariff escalation. Asian markets fell, with Hong Kong’s Hang Seng slipping 0.3 percent, while S&P 500 futures dropped 0.2 percent. The region-wide Euro Stoxx 50 futures also declined. Meanwhile, the dollar strengthened, and gold prices rose, reflecting a flight to safety as fears of a broader trade war rattled investors worldwide.
Valuation concerns in mid- and smallcaps
Adding to the negative mood were continued valuation concerns in the midcap and smallcap segments. S Naren, CIO of ICICI Prudential AMC, last week warned investors about "absurd" valuations in the segment, urging them to exit small- and mid-cap stocks entirely. His comments have sparked debates across the mutual fund industry, amplifying the bearish tone in the broader market.
Safety in largecaps
"The relentless selling by FIIs in largecaps has made their valuations fair, while the valuations of mid and smallcaps continue to be excessive," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services. He suggested that patient investors could find opportunities in quality largecaps, particularly in banking, IT, autos, pharma, and capital goods.
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