Sensex Sheds 2,700 Points in 6 Days: Key Factors Rattling Dalal Street

A Sustained Correction Grips the Market

The Indian stock market is experiencing one of its most significant short-term corrections in recent months. Over the last six trading sessions, benchmark indices have been under relentless selling pressure, pushing the Nifty 50 below the 25,550 mark and dragging the Sensex down by more than 2,700 points. This sustained sell-off has erased nearly ₹18 lakh crore in investor wealth, prompting questions about the underlying causes despite a relatively stable domestic economic outlook. The decline is not isolated to a single factor but is a result of converging pressures from increased global risk aversion, significant capital outflows, and growing uncertainty over international trade policies.

Broad-Based Selling Across Sectors

Indian equities have now recorded a sixth consecutive losing session, marking one of the worst starts to a year in the last decade. The correction is broad-based, with large-cap stocks that previously led market rallies now facing aggressive profit-booking. The Nifty 50 has fallen over 3%, while the Sensex has declined nearly 3.2% during this period. Key sectors including banking, IT, metals, and capital goods have all contributed to the decline, indicating that the sell-off is driven by overall risk mitigation rather than issues with stock-specific fundamentals. The sharp rise in the Nifty VIX (Volatility Index) further signals heightened uncertainty among market participants.

Market Damage at a Glance

Factor 1: Persistent Foreign Investor Outflows

A primary driver of the market's weakness is the continuous selling by Foreign Institutional Investors (FIIs). FIIs have been net sellers for several consecutive sessions, offloading Indian equities worth thousands of crores. For instance, on a single Thursday, they sold shares worth ₹3,367.12 crore. This trend is fueled by multiple concerns. The steady depreciation of the Indian rupee, which recently neared the 90-per-dollar mark, erodes returns for foreign investors, compelling them to pull capital out of emerging markets like India. This creates a negative feedback loop, where FII selling puts further pressure on both the currency and the equity markets.

Factor 2: Global Trade and Tariff Uncertainty

Geopolitical and trade-related tensions, particularly concerning the United States, have significantly dampened investor sentiment. Markets have been on edge since former U.S. President Donald Trump indicated that tariffs on Indian goods could be raised over India's purchases of Russian crude oil. A proposed bill threatening tariffs of up to 500% on countries buying Russian energy products has added to the uncertainty. The unresolved India-U.S. trade deal and a pending U.S. Supreme Court ruling on the legality of Trump's tariffs are critical events being watched closely. An adverse outcome could further disrupt trade relations and trigger a sharper market reaction.

Factor 3: Weak Global Cues and Rising Oil Prices

The cautious mood in Indian markets is reinforced by weak signals from global equities. Asian markets have also edged lower as investors await key U.S. economic data and navigate geopolitical risks. Compounding these concerns are rising crude oil prices. Brent crude has climbed amid geopolitical tensions in Venezuela and the Middle East, trading near two-week highs. As India is a major importer of crude oil, elevated prices widen the country's import bill, stoke inflation risks, and negatively impact corporate profitability, all of which weigh on equity valuations.

Factor 4: Technical Breakdown and Valuation Concerns

Technical indicators have also confirmed the bearish sentiment. Benchmark indices have breached key support levels, such as the 20-day Simple Moving Average (SMA). According to technical analysts, this breakdown has intensified selling pressure. After a significant rally in the preceding months, many analysts believe the market had become overvalued, making it susceptible to a correction. The current downturn is also seen as a phase of profit-booking by investors who are de-risking their portfolios amid the growing uncertainties.

Analyst Commentary and Outlook

Market experts have pointed to the combination of these factors. Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Investments, noted that the stalled U.S.-India trade deal and continuing FII selling are impacting the market. He also highlighted that while the domestic economy shows signs of robust growth, external factors like the depreciating rupee and a spike in Japanese bond yields could trigger further volatility. Analysts suggest that until there is clarity on the U.S. tariff situation and a stabilization in FII flows, the market is likely to remain weak. For long-term investors, this correction may present opportunities to accumulate shares in fundamentally strong sectors like financials and consumer discretionary that have declined with the broader market.

Conclusion: Navigating a Volatile Period

The sharp fall in the Indian stock market is a clear indication of how interconnected global and domestic factors can influence investor sentiment. Persistent FII outflows, unresolved trade tensions, rising commodity prices, and technical weakness have collectively triggered this significant correction. Looking ahead, the market's direction will likely be dictated by the outcome of the U.S. Supreme Court's verdict on tariffs, the U.S. Federal Reserve's upcoming policy decisions, and the trajectory of global crude oil prices. Investors are advised to remain cautious as volatility is expected to persist in the near term.