India's stock market has experienced a severe downturn over the past few trading sessions, with selling pressure intensifying on Friday during morning trade. By the close of trading at 3:30 p.m., the benchmark indices—BSE Sensex and NSE Nifty—had fallen by about 2% each, wiping out approximately Rs 9 lakh crore of investors' wealth.
The BSE Sensex opened lower at 74,201 and plummeted to an intraday low of 73,538, reflecting a loss of over 1,000 points by midday. Similarly, the Nifty 50 index opened at 22,433 and quickly touched an intraday low of 22,217, marking a drop of over 1.20% within the first few minutes of trading.
Even the typically strong Bank Nifty index faced a disappointing start, opening at 48,437. The benchmark banking index further dipped to an intraday low of 48,161, representing a loss of around 0.60%.
Interestingly, on Friday, stocks across all sectors were in the red, with the IT, tech, auto, and telecom sectors bearing the brunt of the sell-off. At the close, the market capitalisation of BSE-listed companies, which stood at Rs 479 lakh crore on September 27, 2024, plummeted to Rs 384 lakh crore.
Meanwhile, FIIs have offloaded over Rs 46,000 crore through exchanges this month as of February 27, taking the total outflow in 2025 to over Rs 1.33 lakh crore.
Five Key Reasons Behind the Fall
Market experts point to five major factors driving the ongoing market decline, including concerns over weak earnings from Indian banks, the upcoming rebalancing by global index provider MSCI, domestic institutional investors (DIIs) being stuck at higher levels, rising US bond yields, and foreign institutional investors (FIIs) shifting capital from India to China.
Speculation Regarding Weak Earnings of Indian Banks: Analysts are predicting that the earnings for Indian banks in the fourth quarter (Q4 FY25) will fall short of market expectations, contributing to heightened selling pressure in the stock market on Friday. The third-quarter (Q3 FY25) earnings season had already been disappointing, and another round of weak results is weighing heavily on investor sentiment. With banking stocks accounting for nearly 30% of the Nifty 50’s weight, this sector’s weakness is directly affecting both the Nifty 50 and Sensex.
Domestic Institutional Investors (DIIs) Stuck at Elevated Levels: Typically, when foreign institutional investors (FIIs) sell in the Indian market, DIIs step in to support the market. However, this time, that trend hasn’t materialized. A major reason for this is that DIIs are still holding positions at significantly higher levels and are reluctant to reposition until they have a clearer picture of the market's direction.
MSCI Rebalancing: As MSCI is one of the leading global providers of investment decision tools, its anticipated rebalancing is also contributing to the market downturn. This rebalancing, which takes effect after the close of trading on February 28, can impact trading volumes and the inflow/outflow of capital into specific stocks. Both DIIs and FIIs are expected to realign their portfolios ahead of the MSCI rebalancing.
Rising US Bond Yields: FIIs have been increasingly pulling capital from India and reallocating it to the US bond market, which is currently offering more attractive returns. This trend has intensified under the administration of President Donald Trump, and foreign investors are likely to continue selling in Indian markets as long as the US bond market remains appealing.
Capital Shifting from India to the US and China: Since the resurgence of the Trump administration, the US equity market has been drawing significant capital inflows from across the globe. Additionally, China has become an attractive destination for portfolio flows. The country’s new initiatives, led by its business leaders, have sparked optimism about a potential economic recovery. This has led to a positive response from the Chinese stock market, which is benefiting from attractive valuations. The "Sell India, Buy China" narrative is gaining traction among FIIs, especially as China stabilizes its economy with rate cuts, property sector support, and liquidity injections.
On Friday, the selling pressure was widespread across all segments of the market. The broader indices saw more significant declines than the frontline indices. The BSE Small-cap index fell over 2%, and the BSE Mid-cap index dropped close to 2% during the early morning session. Stocks like Patanjali Foods, Granules India, Aditya Birla Real Estate, Deepak Fertilisers, and Redington were among the top losers.
By 11:30 AM on Friday, 78 BSE-listed stocks hit the upper circuit, while 360 stocks were locked in the lower circuit, and by market close, 106 BSE-listed stocks touched the upper limit, and 476 stocks were in the lower circuit limit. Furthermore, in the morning trade 43 BSE-listed stocks reached a 52-week high, while 728 stocks touched a 52-week low. By market close, it was 12 in their 52-week highs and 282 small-cap stocks in their 52-week lows on Friday.