Sensex drops 500 pts, Nifty slips below 25,800: Fed jitters, Trump’s tariff threat on India’s rice exports among key factors behind market decline

Stock Market Today: Sensex, Nifty extended decline on profit booking. 

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26 Aug, 2025 12:21

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The equity benchmarks fell for a second straight session on Tuesday, extending the previous day’s sharp decline, as caution prevailed ahead of the US Federal Reserve’s policy announcement. Sentiment was further hit after the US signalled possible tariff action against India’s rice exports.

At 9:50 am, the Sensex dropped 633.90 points or 0.74 percent to 84,468.79. The Nifty slipped 211.25 points or 0.81 percent to 25,749.30. All 16 major sectoral indices were in the red.

Asian Paints, Infosys and Jio Financial Services were among the major laggards in the Nifty50 pack, declining up to 4 percent, while Titan Company and ETERNAL were among the top gainers, rising up to 1 percent. Market breadth remained negative as about 1400 shares advanced, 2104 shares declined, and 151 shares unchanged.

1) Fed outcome jitters: Investors remained on edge ahead of the Fed’s two-day meeting beginning later in the day, with traders widely expecting a 25-basis-point rate cut on Wednesday. Market participants are watching for indications on the pace of easing in 2026 amid persistent inflation concerns and expectations of a resilient US economy.

Devarsh Vakil, Head of Prime Research at HDFC Securities, said the rate cut was largely priced in. "Markets will focus on the Fed’s statement for signals about 2026 rate policy. The Fed will release its policy statement, updated economic projections, and Chair Jerome Powell will hold a press conference. Investors expect 2–4 additional cuts in 2026 unless economic data shifts significantly," he said.

2) Tariff threat on India's rice exports to US: Concerns over India’s rice exports added to the pressure after US President Donald Trump said India should not be "dumping" rice into the American market and indicated he would "take care" of the issue through tariffs. The US is the fourth-largest market for Indian basmati rice, with exports touching 270 thousand metric tonnes. Indian export prices have remained unchanged despite tariffs, with importers in the US passing on the additional costs to consumers.

Shares of rice exporters fell following the comments. KRBL declined up to 2.9 percent, LT Foods 8 percent, GRM Overseas 4.8 percent and Mishtann Foods 2.1 percent.

3) Decline in rupee: The rupee weakened 10 paise to 90.15 against the US dollar in early trade amid demand from corporates, importers and foreign portfolio investors. Traders said participants were awaiting clarity from the Fed before taking fresh positions. The currency opened at 90.15 at the interbank foreign exchange, down from its previous close.

"Despite hopes pinned on a potential US Fed cut on December 10, sentiment remains fragile with FIIs continuing to sell, the rupee weakening towards 90/USD, and global cues turning softer," Prashanth Tapse , Senior VP (Research), Mehta Equities Ltd, said.

4) Persistent FII selling: Foreign institutional investors continued to pare holdings, selling Rs 655.59 crore on Monday — the eighth straight session of outflows. Persistent FII selling typically adds to market weakness as overseas investors trim risk exposure amid global uncertainty.

5) Weak global cues: Global cues also remained weak. Key Asian indices, including Hong Kong’s Hang Seng, South Korea’s KOSPI and Shanghai’s SSE Composite, traded lower. US markets closed in the red on Monday as investors turned cautious ahead of the Fed decision.

6) Broader markets extend decline: The mid and smallcap shares extended decline in today's session with the indices falling up to 1 percent. In the previous session, the Nifty Midcap 100 fell 1.83 percent, while the Nifty Small Cap 100 slid 2.61 percent — its steepest single-day fall since April 7, 2025, and a six-month low.

7) Selling in IT shares: IT stocks were among the major drags. All 10 constituents of the Nifty IT index traded in negative territory, with Coforge and Persistent Systems leading the losses.

Anand James, Chief Market Strategist at Geojit Financial Services, said the Nifty may see early weakness but could attempt a recovery if 25,842 holds. A move above 26,000 may strengthen the upside, while a break below 25,842 could extend losses towards 25,650, he said.