Sensex and Nifty plunged sharply on Wednesday as global trade war fears and persistent selling by foreign institutional investors (FIIs) rattled investor sentiment.
Sensex tanked 862.9 points or 1.13 percent to the day's low of 75,430.70, slipping below the 76,000-mark. The broader Nifty also lost 257.3 points or 1.11 percent to 22,814.50, breaking the crucial 23,000-level.
The market rout wiped out around Rs 7 lakh crore of investor wealth, with the benchmarks extending their losing streak for the sixth consecutive session. In the past five days, the Sensex has declined by 2,290.21 points or 2.91 percent, while the Nifty has fallen 667.45 points, or 2.81 percent. Mahindra & Mahindra, Zomato, Axis Bank, IndusInd Bank, Asian Paints, ITC and Adani Ports were the biggest laggards.
Key factors behind market decline:
1) Trump’s tariff tantrums: The European Union has responded strongly, with European Commission President Ursula von der Leyen vowing countermeasures on US, stating that such tariffs “will not go unanswered.” The possibility of a retaliatory tariff war has further heightened uncertainty in global markets.
2) Fading hopes of rate cuts: Trump’s tariff stance could restrict monetary easing, limiting the US Federal Reserve’s ability to cut interest rates. Higher US interest rates tend to reduce the appeal of emerging market investments, leading to capital outflows from markets like India. U.S. Federal Reserve Chair Jerome Powell, in his appearance before US Congress noted "We are in a pretty good place with this economy," Powell said, noting that the Fed was in no hurry to make any further interest rate cuts, but stood ready to do so if inflation declines further or the job market weakens.," reported Reuters.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, remarked, "President Trump, however powerful, cannot defy economic fundamentals. Higher tariffs will stoke inflation in the US, prompting a hawkish Fed response. This could eventually lead to a stock market crash in the US, forcing a recalibration of policy. Until then, market volatility will persist."
3) Weak Q3 earnings dampen sentiment: Subdued corporate earnings for the December quarter added to investor woes. Companies like Berger Paints, Gopal Snacks and Eicher Motors among others joined other India Inc companies to report lacklustre results, reflecting a slowdown in earnings momentum. Weak quarterly performance has weighed on investor sentiment, adding to the selloff pressure.
4) Small and midcap valuations remain steep: Despite the broader market correction, valuations in the mid and smallcap segments remain elevated. The relentless selling over the past two months has dragged these indices into bear territory. The Nifty Smallcap index has plummeted over 20 percent from its all-time high in December 2024, while the Nifty Midcap index has fallen more than 18 percent from its September peak.
"Investors should use the market weakness to shift from overvalued mid and smallcaps to fairly valued largecaps. While a technical pullback is possible, sustained FII selling could cap any near-term recovery," Vijayakumar added.
5) Continued FII selling: Foreign Institutional Investors (FIIs) offloaded equities worth Rs 4,486.41 crore on Tuesday. They have sold Rs 10,112 crore so far in February and Rs 78,027 crore in the month of January.
Technical outlook:
Aakash Shah, Technical Research Analyst at Choice Broking noted that on the daily chart, the Nifty has formed a bearish candlestick pattern for five consecutive sessions, indicating continued weakness. The index faces immediate resistance at 23,180, and a breakout above this level could trigger gains towards 23,350 and 23,500. On the downside, support is placed at 22,970, with a breach likely to extend declines towards 22,775 and 22,500.
Bank Nifty also declined sharply, falling 577 points in the previous session. A sustained drop below 49,350 could test key support at 49,000 and 48,850. Conversely, a rebound from these levels could open buying opportunities, with resistance seen at 49,650. A close above this level could push the index towards 50,000.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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