Sensex fall explained: 10 drivers behind 2026 selloff

What set off the selloff on Dalal Street

Indian equities slipped as multiple global and domestic risk signals converged in a short window. Market experts linked the fall primarily to an escalation in the US-Iran conflict after US retaliatory strikes in Iran, and the spike in crude oil prices that followed. Those triggers quickly fed into broader risk-off positioning, especially as the rupee weakened and foreign investors continued to cut exposure.

Sentiment was also weighed down by expectations of weak Q1FY27 results, profit-booking after a rally, and a visible rise in volatility indicators like India VIX. In several sessions referenced by market commentary, the decline was broad-based, with most sectors trading in the red. The pressure was not limited to one theme, but the combination of geopolitics, commodities, currency moves, and flows set the direction.

1) US-Iran war and uncertainty around a truce

Escalating tensions in the US-Iran war were cited as a primary reason for selling pressure. Fresh strikes by both sides raised uncertainty in the Middle East and triggered risk aversion across bourses, including Indian markets. The uncertainty was compounded after plans for US talks with Iranian negotiators were called off, as US Vice President JD Vance dropped plans to travel to Geneva.

The headline risk mattered because it raised concerns about the duration of the conflict and the possibility of disruption to key energy routes. Vinod Nair of Geojit Investments also highlighted fears of a bottleneck in the Strait of Hormuz, a risk channel that links geopolitics directly to oil prices and inflation expectations.

2) Crude oil surge and India’s import sensitivity

Soaring crude oil prices were repeatedly flagged as a key drag. Higher oil prices hurt India, the world’s third-largest oil importer and consumer, by widening the import bill, stoking inflation and squeezing growth. In one market update, Brent crude futures were reported up 1.31% at $11.27 a barrel, while WTI was up 1.05% at $15.73.

Several selloffs in the period were described as being driven by surging oil prices and escalating Middle East tensions, including references to the United States–Israel war with Iran intensifying. The oil move also interacted with currency weakness, as a weaker rupee can magnify the local cost of imported commodities.

3) Weak Q1 results expectations and earnings slowdown worries

Expectations of weak Q1FY27 results added another layer of caution. Avinash Gorakshkar, a SEBI-registered fundamental equity analyst, said geopolitical tension in the Middle East had hit the global economy badly and that it would take time to recover from the repercussions. Against that backdrop, market participants were described as discounting weaker earnings at higher index levels.

Separate commentary also pointed to an earnings slowdown and muted Q4 earnings growth as contributors to volatility. When earnings visibility weakens at the same time as macro risks rise, investors typically reduce risk exposure and rotate away from higher valuation pockets.

4) Persistent FII selling and risk-off flows

Continuous selling by FIIs was cited as a direct reason benchmark indices struggled to sustain at higher levels. The selling was linked to rising risk sentiment and weakness in the Indian rupee against the US dollar. Flow data points in the market updates reinforced the same theme, including net selling of Rs 1,025 crore on one session and foreign investors selling equities worth Rs 6,030 crore on a Friday, according to exchange data.

There was also a reference to FIIs selling shares worth Rs 3,367.12 crore on a Thursday, marking the fourth straight session of net selling in that period. Alongside geopolitics and oil, the steady exit of overseas funds was presented as a key amplifier of declines.

5) Rupee weakness and volatility spike (India VIX)

Rising risk sentiment was visible in volatility measures. One update noted India VIX had surged over 5% on a Wednesday, triggering profit-booking, with 13 of 16 sectors trading in the red. Another update put the India VIX up 10.12% to 13.46 as traders navigated a February 19 F&O expiry for Sensex and Nifty, a period that can amplify swings.

Currency weakness was repeatedly mentioned as a driver of risk sentiment, especially because it can worsen imported inflation pressures during an oil spike. Together, the rupee and VIX signals indicated investors were paying more for protection and reducing risk.

6) IT-led selling after Accenture’s outlook cut

IT stocks were singled out as a key factor in at least one sharp market slide. IT heavyweights including Infosys, TCS, Tech Mahindra and HCL Tech fell up to 7% after Accenture’s share price dropped 11% on Wall Street. Accenture revised its FY26 revenue growth guidance to 3%–4% from 3%–5% and projected fourth-quarter revenue of $17.75–$18.4 billion versus Street expectations of $18.47 billion (LSEG).

The softer outlook raised worries about discretionary spending caution in IT consulting and digital transformation, even as investments in AI and cybersecurity continue. For Indian indices, heavy IT weightage can translate sector-specific weakness into broader benchmark pressure.

7) Trade and tariff uncertainty linked to Donald Trump

Investor uncertainty was also tied to tariff policy risks. Market commentary referenced uncertainty over US President Donald Trump’s tariff policies and tariff threats on Europe, Canada, and other trade partners. Another note said Trump indicated tariffs on Indian exports could be increased over New Delhi’s continued purchases of Russian crude, and mentioned a bill proposing 500% tariffs on countries buying Russian oil.

This trade uncertainty affected global risk appetite and contributed to muted cues across Asia, which in turn fed into cautious positioning in Indian equities.

8) Rates, yields, and hawkish commentary

Higher global yields and central bank commentary were also part of the risk mix. One update said hawkish US Federal Reserve commentary helped trigger a selloff alongside soaring crude prices. Another referenced rising US Treasury yields and spillover effects on emerging markets, reinforcing the risk-off tone.

Uncertainty around the Fed’s rate-cut trajectory was also cited as a pressure point, alongside the continued weakness in INR.

What the market moves and numbers show

The selloff was associated with sharp market-cap erosion in different stretches. One summary stated Indian equities lost Rs 4.5 lakh crore in 100 days as the Iran-led West Asia conflict and a global AI trade unwind triggered sharp FII outflows. Another said soaring crude prices and hawkish Fed commentary wiped out over Rs 11.5 lakh crore in market capitalisation.

On a separate sharp down day, the Sensex was reported to have closed at 82,626.76, down 1,048 points or 1.25%. Another update described the Sensex plunging more than 1,000 points, with nearly Rs 5 lakh crore wiped off investor wealth, amid worries over weak monsoon forecasts, foreign selling, and uncertainty around a US-Iran peace deal.

Why this combination matters for investors

The common link across these factors is that they reinforce each other during risk-off phases. Geopolitical escalation lifted crude, crude and rupee weakness raised inflation concerns, and that mix tightened financial conditions expectations. At the same time, FII selling and profit-booking can turn routine declines into sharper moves, especially when volatility rises.

Sector-specific shocks, such as the IT selloff after Accenture’s guidance, added to index pressure at a time when earnings expectations were already cautious. With global cues and policy uncertainty also in play, markets reflected less willingness to pay up for risk until visibility improves.

Conclusion

Indian equities weakened as the US-Iran conflict, crude oil surge, rupee pressure, and sustained FII selling combined with profit-booking and cautious earnings expectations. IT-led selling and trade-tariff uncertainty added to the downmove in specific sessions.

Investors will continue to track crude prices, currency moves, volatility indicators like India VIX, and FII flow data, alongside updates on US-Iran talks and upcoming quarterly results guidance.