Why stock market fell today? 4 key factors behind 706-point Sensex crash, Nifty50 at 24,500

Indian equities ended lower on Thursday, with the Sensex falling over 700 points and Nifty dropping below the 24,500 level during the session as banks and IT stocks bore the brunt of the selling. The slide came a day after the United States' 25% additional tariffs on Indian imports took effect, rattling investor sentiment and setting the tone for the session.

The tariffs were the single biggest drag on the market, but investors were also contending with a cocktail of other headwinds, from weak global cues to sustained foreign fund outflows. Together, they deepened the selloff and pushed benchmarks further into the red.

The BSE Sensex declines 705.97 points, or 0.87%, to finish at 80,080.57, while the NSE Nifty slipped 211.15 points, or 0.85%, to settle at 24,500.90.

The rout erased Rs 4.67 lakh crore in market value from companies listed on the BSE, pulling the exchange’s overall capitalisation down to Rs 445.27 lakh crore.

Domestic equities ended lower as pessimism took hold following the implementation of tariffs on Indian goods, dampening investor sentiments, said Vinod Nair, Head of Research at Geojit Investments, adding that investor mood remained fragile, with large caps declining and midcaps and smallcaps underperforming amid risk-off sentiment.

"Most sectors, including Auto, IT, FMCG, and Metals, traded in the red as investors turned to profit booking from recent gains, while Consumer Durables outperformed, likely supported by GST rationalisation and expectations of festive demand," said Nair.

The Nifty and Sensex have shed about 2% over the past two sessions, with markets closed on Wednesday.

On the day, index heavyweights HDFC Bank and ICICI Bank fell 1.6% and 1.2%, respectively.

Small-cap and mid-cap stocks also weakened, slipping 1.5% and 1.3%.

Among individual moves, InterGlobe Aviation, the operator of budget carrier IndiGo, dropped 5.3% after reports of a co-founder’s discounted stake sale.

Ola Electric Mobility climbed 7.9%, extending gains for a second session after its Gen 3 scooters won compliance certification under a government scheme.

Here are the four main factors why stock market fell today:

1. U.S. tariffs take effect

Washington’s additional 25% punitive tariffs on Indian imports came into force on Wednesday, clouding the near-term outlook for exporters and broader sentiment.

Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Investments, said the levies are likely to weigh on equities in the short run but may not spark panic.

“The 50% tariff imposed on India, which has already come into effect, will weigh on market sentiments in the near-term. But the market is unlikely to panic since the market will view these high tariffs as a short-term aberration which will be resolved soon,” Vijayakumar said, pointing to U.S. Treasury Secretary Scott Bessant’s assurance that “at the end of the day India and U.S. will come together.”

Beyond tariffs, Vijayakumar highlighted stretched valuations and weak earnings growth as more persistent concerns. In his view, export-oriented sectors may face near-term headwinds, while investors are likely to rotate into “fairly valued domestic consumption themes.” He suggested that shifting exposure from overheated small-caps to safer large-cap consumption plays could offer better protection.

Also read: Motilal Oswal Securities bullish on India's consumer sector; HUL, Marico among top picks

2. Continued FII selloff

Foreign investors continued to pare their India exposure, extending their selling streak for a third straight session. On August 26, foreign institutional investors offloaded shares worth a little over Rs 6,500 crore, according to exchange data. Domestic institutional investors, meanwhile, stepped in as net buyers to the tune of Rs 7,060 crore.

The retreat has been broad-based. FIIs have pulled out nearly Rs 31,900 crore across eight sectors in the first half of August, with financials and technology accounting for the bulk of the selling. Net equity sales in the first half of this month stand at about Rs 20,976 crore, adding to July’s withdrawals and pushing year-to-date outflows to around Rs 1.2 trillion.

Jefferies noted earlier this month that foreign portfolio investor positioning in India is at “decadal lows.” While steady domestic inflows are cushioning the impact, analysts caution that any rebound may be fragile.

Dr. V.K. Vijayakumar of Geojit Investments said that support from local institutions remains a key stabiliser. “The strong pillar of support to the market is the aggressive buying by DIIs flush with funds,” he said, adding that domestic flows are helping offset the foreign exodus.

3. Asian peers waver

Shares across Asia slipped into the red on Thursday, with investors balancing blockbuster earnings from Nvidia against mounting concerns over the chipmaker’s China exposure.

MSCI’s broad index of Asia-Pacific shares outside Japan swung between gains and losses before settling 0.2% lower. U.S. equity futures also lost ground in after-hours trade, with S&P 500 e-minis down 0.2% and Nasdaq futures off 0.4% as Nvidia’s stock retreated despite posting record results. The company, now the world’s most valuable, faces uncertainty over its sales in China, which remain entangled in the U.S.-China trade conflict.

Japanese equities fluctuated after reports that Tokyo’s top trade negotiator cancelled a scheduled trip to Washington, delaying follow-up talks on a trade pact reached last month. The Nikkei 225 last traded up 0.4%. Hong Kong markets, meanwhile, underperformed, with the Hang Seng Index sliding 1%.

Adding to the unease, U.S. political headlines spilled into markets after President Donald Trump said earlier this week he was removing Federal Reserve Governor Lisa Cook. The move stirred investor concerns about the central bank’s independence, though Cook has vowed to challenge the dismissal in court.

4. Technicals flash bearish signals

Market charts are pointing to further downside, though some analysts see room for a near-term bounce.

Anand James, Chief Market Strategist at Geojit Investments, said the index has “slipped into bear territory,” putting 24,071–23,860 levels in play. James noted that the nearly 2% decline in just four sessions could also set the stage for a rebound, with resistance at 24,780 and 24,870. “Inability to float above 24,630 or clear 24,900 will signal that bears continue to have the upper hand,” he said.

Amruta Shinde, Technical & Derivative Analyst at Choice Equity Broking, said the Nifty50’s last session produced “a strong bearish candle on the daily chart, which signals sustained selling pressure.” Shinde flagged 24,850 as a key level: a move above it could open the door to 25,000 and 25,150, while support lies at 24,670 and 24,500.

Also read: IndiGo shares slide 5% as Gangwal family likely pares 3.1% stake via block deal

Bank Nifty, which has been under pressure for four straight sessions, slipped below the 55,000 mark. Shinde said support is placed at 54,054 and 53,550, while resistance at 54,500–54,700 could cap any rebound. A break higher, she said, “could trigger a move back toward the psychological 55,000 level.”

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)