Benchmark stock indices started the day significantly lower on Tuesday following a previous day’s decline. The negative trend was driven by poor global cues, ongoing foreign investor selling, and pressure on mid- and small-cap stocks, leading to a decrease in investor confidence.
The Sensex dropped by more than 700 points, falling below 84,400, while the Nifty fell below 25,800, primarily due to losses in the banking, metal, and IT sectors. Factors contributing to market unease included higher US bond yields, a stronger dollar, and the rupee weakening beyond 90 per dollar. Investor concerns were also exacerbated by looming US inflation data, potential interest rate adjustments, and recent tariff threats on Indian rice exports by Donald Trump amid sluggish India–US trade negotiations.
Enrich Money’s CEO, Ponmudi R, highlighted that profit-taking was evident in major stocks following a recent rally, with some investors shifting towards a more defensive investment approach, leading to slight unwinding in IT and banking segments.
Geojit Investments Limited’s Chief Investment Strategist, Dr. VK Vijayakumar, noted that the recent market surge had been narrow, failing to attract retail investors. Despite the Nifty reaching record highs, many stocks within the NSE 500 index were trading below peak levels, leaving retail investors, particularly those holding mid- and small-cap stocks, disheartened. This disparity has now translated into increased selling pressure across the broader market, with overvalued mid- and small-cap stocks witnessing price declines while larger-cap stocks remain relatively stable.
Vijayakumar suggested that the correction in midcaps might persist for some time before long-term investors find attractive buying opportunities, pointing out that defense stocks were beginning to show value potential.
Anand James, Geojit Investments Limited’s Chief Market Strategist, cautioned that near-term market levels were fragile, with possible slippages ahead. He mentioned that a Nifty break below 25,842 could trigger a slide towards 25,650, emphasizing that a recovery would only gain momentum if the index surpassed 26,000.
Regarding market performance post the Reserve Bank of India’s recent rate cut, Prashanth Tapse, Senior VP (Research) at Mehta Equities Ltd, noted that markets had failed to capitalize on the rate reduction. He attributed fragile sentiment to sustained foreign investor selling, a declining rupee nearing 90 against the dollar, and soft global cues.
Foreign institutional investors continued their selling streak, offloading equities worth Rs 655 crore on Monday for the third consecutive session, while domestic institutional investors remained buyers, acquiring shares worth Rs 2,542 crore.
Given the market’s volatility, analysts advised traders to be cautious, minimize leverage, and consider initiating new long positions only above the 26,300 level with strict risk management measures.