The benchmark equity indices tumbled sharply by over 1 percent on Tuesday, snapping a two-day rally, as weak cues from Asian markets and selling in IT and financial shares triggered a broad-based selloff.
Sensex dropped 624.82 points or 0.76 percent to settle at 81,551.63, in a volatile session. During the day, the barometer tanked 1,054.75 points or 1.28 percent to 81,121.70. The Nifty declined 174.95 points or 0.70 percent to 24,826.20.
UltraTech Cement, Grasim Industries, Mahindra & Mahindra, Tata Consumer Products and ICICI Bank were among the major laggards.
Key factors behind the decline:
1) Profit booking at higher levels: Analysts pointed out that profit booking at higher levels weighed on the market. After Nifty closed above the 25,000 mark on Monday, investors chose to lock in gains — a trend visible in recent weeks. "We are again seeing profit booking at 25,000 levels as there are not enough positive triggers to pull the Nifty above these levels as of now," Dharmesh Kant, Head of Equity Research at Cholamandalam Securities told Reuters.
2) Monthly expiry today: The BSE monthly derivatives expiry is scheduled for Tuesday, May 27, a factor typically associated with heightened market volatility. The weekly and monthly derivatives contracts for Sensex and Bankex will also expire today. On the NSE, however, expiry is set for Thursday.
3) Weak Asian market trends: Equities across Asia traded lower, tracking uncertainty in global trade. South Korea's Kospi, Japan's Nikkei 225, China’s Shanghai Composite and Hong Kong’s Hang Seng were in the red. Sentiment turned cautious after U.S. President Donald Trump deferred a proposed 50 percent tariff on European Union imports, pushing investors in Asia to reassess trade risks.
4) Domestic data release: Caution prevailed ahead of the release of key macroeconomic data this week. Industrial production and manufacturing output figures for April are due Wednesday, followed by the release of first quarter GDP data later in the week. Market participants preferred to stay on the sidelines ahead of these crucial indicators.
5) Spike in volatility index: The India VIX, which measures market volatility and investor sentiment, surged nearly 6 percent to 19.05, reflecting rising nervousness among market participants.
6) IT and financial stocks under pressure: The decline was led by selling in IT and financial shares. The Nifty IT index slipped nearly 1 percent amid global trade concerns. Banking indices such as Nifty Bank, Nifty Financial Services, Nifty PSU Bank, and Nifty Private Bank also declined up to 1 percent.
7) Global trade uncertainty remains: While Trump’s decision to delay the new EU tariffs provided some relief, the unpredictable nature of U.S. trade policy continues to keep investors on edge. Talks are now expected to continue until July 9, but market participants are treading cautiously in the interim.
8) Geopolitical tensions: Germany’s green light for Ukraine to launch strikes inside Russian territory has intensified geopolitical tensions. The Kremlin condemned the move as provocative, and Russia responded with a third consecutive night of aerial attacks. The situation has fuelled broader risk aversion across global markets.
9) Rise in Covid cases: The active cases climbed to 1,009 from 257 last week, which further spooked the investors.
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