Sensex falls 500 pts from day's high, Nifty below 25,300: Four key reasons behind market decline

Sensex falls 450 pts from day's high, Nifty below 25,300: 3 key reasons behind markets trimming gains

• Sensex and Nifty fell after profit booking and FII selling on January 22.
• New labour codes weighed on Q3 results, affecting some stocks' profitability
• Eternal erased all its gains

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Indian equity benchmarks Sensex and Nifty saw significant profit booking on January 22 after they soared amid a rebound in global equities after US President Donald Trump stepped back from threats to impose tariffs on eight European countries as leverage to seize Greenland and ruled out the use of force. The Nifty 50 rose 1.09% to 25,430.3, while the BSE Sensex added 1.03% to 82,751.95 in early morning trade.

However, in afternoon trading, heavy profit booking was seen from day's highs as Sensex fell 500 points and Nifty was trading below the 25,300-mark.

At 2:45 pm, the Sensex was up 341.33 points or 0.42% at 82,250.96, and the Nifty was up 111.05 points or 0.44% at 25,268.55. About 2,698 shares advanced, 1,139 shares declined, and 117 shares were unchanged.

Four reasons behind markets trimming gains:

1. Profit booking

Profit booking was seen in markets as they rebounded strongly after three-day fall amid broad-based buying. Bank Nifty fell 1% from day's high and was trading 0.16% higher at 11 am on January 22.

"The 25,250–25,300 zone now acts as immediate resistance for Nifty, and any recovery towards this band may face selling pressure. On the downside, 25,000 remains critical psychological and technical support. A decisive break below this level could open the door for further downside towards 24,800–24,900 in the near term. Momentum indicators remain weak, though oversold conditions could allow for short-lived relief rallies," said Aakash Shah, Technical Research Analyst, Choice Broking.

"Bank Nifty index has failed to reclaim the 59,700–60,000 zone, keeping sentiment around banking stocks cautious. Immediate support lies near 58,500–58,600, while any upside is likely to be capped unless there is improvement in earnings visibility and broader market confidence," added Shah.

Nifty, Sensex slid about 2% each over past three sessions on trade and geopolitical worries, foreign outflows and tepid earnings

Top heavyweight stocks like HDFC Bank and ICICI Bank fell marginally, thus capping market gains on January 22.

Nifty Midcap fell 1.26% from day's high.

SBI Life Insurance Co. fell the most among Nifty 50 companies and was down almost 2%. Hindalco Industries and Max Healthcare Institute also traded near the bottom of the pack. Shares of Eternal fell after rising earlier in the session. The Nifty Realty index was the worst performing sectoral index.

Shares of Hindustan Zinc were down over 4%, and it was among the worst hit Nifty 200 stock. This followed a sharp fall in silver-related exchange-traded funds.

2. FII selling continues

FIIs continued to sell on January 21 as well. "Flows continue to be a key driver. FIIs remain net sellers, exerting pressure on benchmark indices, while DIIs are providing selective support, preventing sharper declines," said  Shah.

Foreign investors (FIIs/FPIs) net sold Rs 1,788 crore worth of Indian equities on January 21. At the same time, domestic institutional investors (DIIs) net bought shares worth Rs 4,520 crore, according to provisional exchange data.

DIIs purchased shares worth Rs 17,387 crore and sold shares worth Rs 12,867 crore. In contrast, FIIs bought shares worth Rs 15,371 crore but sold shares totalling Rs 17,159 crore.

"A significant feature of the market behaviour in 2025 was that India’s tepid performance last year (Nifty return of only 10%) was despite the massive DII investment of Rs 7.44 lakh crore, which completely eclipsed the total FII selling of Rs 1,66,283 crore. The principal reason for this tepid performance was the poor earnings growth and the consequent elevated valuations in India. The continuing suspense over the US-India trade agreement also impacted the sentiments.

"Now, it appears that the FII selling trend may continue until some positive triggers for a market rally happens. The AI trade which dominated stock market trend in 2025 is continuing in early 2026 also. A reversal of this trend might happen sometime in 2026," said VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited last week.

3. India VIX rises

India VIX, the volatility indicator, rose nearly 4% after initially falling on January 22, thus signaling increased market stress.

VIX is calculated from options prices that expire in next 30 days; higher reading indicates potential for high near-term price fluctuation; lower VIX suggests calmer market.

Sharp uptick in volatility highlights elevated intraday swings and fragile sentiment, as reflected in a weak advance-decline ratio, said SAMCO Securities.

4. Sensex F&O Expiry

With January 22 being weekly F&O expiry of Sensex, markets are seeing heightened volatility, which is usually associated with expiry day.

Technical View

The 50-stock index has erased nearly 200 points from its intraday peak. Unless the Nifty 50 reclaims the 25,500 point level decisively, it is going to face selling pressure, Jatin Gedia, vice-president of technical research at Teji Mandi Investment Technologies told Informist. The Nifty 50 was in oversold territory, which may have led to a counter-trend rally, but investor sentiment is not likely to improve on comments of a trade deal alone, and investors are likely to be cautious until a trade deal between India and the US is officially announced, the analyst told the news agency.