Sensex Crash 2026: Why ₹18.5 Lakh Crore Vanished in 6 Days

A Turbulent Start for Indian Markets in 2026

The Indian stock market witnessed a tumultuous start to 2026, with benchmark indices experiencing one of their most severe corrections in recent memory. A confluence of adverse domestic policies, relentless foreign fund outflows, and turbulent global cues triggered a widespread selloff on Dalal Street. In a brutal six-day period, investor wealth amounting to a staggering ₹18.5 lakh crore was wiped out, as the BSE Sensex slumped by 2,900 points and the Nifty 50 sank by 3%, breaking crucial psychological levels and shaking investor confidence.

The Anatomy of the Selloff

The decline was sharp and broad-based. The Nifty 50 cracked below the 25,000 mark, while the Sensex tumbled over 1,500 points in a single session following the Union Budget. The selling pressure was relentless, with markets seeing multiple sessions where over ₹6 lakh crore in market capitalization vanished intraday. The India VIX, a gauge of market volatility, spiked, signaling heightened fear and uncertainty among participants. The downturn erased early year gains and pushed the indices to their lowest levels in over three months, marking the worst start to a year in a decade for Indian equities.

Domestic Triggers: The Budget and Earnings

A primary domestic catalyst for the sharp correction was the Union Budget 2026. A proposal to significantly hike the Securities Transaction Tax (STT) on futures and options trading sent shockwaves through the market. Traders and investors reacted negatively, fearing that higher taxes would stifle trading volumes and impact the profitability of brokerages and exchanges. This policy move triggered an immediate and aggressive selloff, wiping out ₹10 lakh crore in a special trading session.

Adding to the domestic woes were mixed corporate earnings for the third quarter. Several heavyweight stocks reported subdued results, failing to provide a positive cushion against the negative sentiment. The information technology sector, in particular, led the declines amid concerns over global demand and project pipelines.

Persistent Foreign Investor Outflows

Foreign Institutional Investors (FIIs), a key driver of Indian market liquidity, turned into aggressive sellers. In January, FIIs offloaded equities worth $1 billion, creating significant downward pressure. The selling intensified through February, with one report noting a daily outflow of ₹2,550 crore, marking the 13th consecutive session of net selling. This sustained exit of foreign capital was a major factor behind the market's inability to find a stable footing, as domestic institutional buying was insufficient to absorb the heavy supply.

Global Headwinds: Tariff Wars and Wall Street Volatility

The turmoil in Indian markets was amplified by a deteriorating global environment. The primary source of global anxiety stemmed from the United States, where President Trump's aggressive trade policies created widespread uncertainty. Threats of new tariffs against the European Union and China rattled international markets, sparking fears of a renewed trade war that could derail global growth.

Wall Street itself experienced extreme volatility, with multi-trillion dollar wipeouts in short periods. Events such as a $1.65 trillion crash following tariff threats and a $1.5 trillion tech stock selloff fueled by concerns over an AI bubble and shifting Federal Reserve rate cut expectations created a powerful risk-off sentiment globally. This panic on Wall Street led investors to pull capital from emerging markets like India in a flight to the safety of assets like gold and US Treasuries.

Summary of Market Pressures

Sectoral Impact and Analysis

The selloff was not confined to a few sectors; it was a broad-based decline that affected nearly every corner of the market. However, IT and other heavyweight stocks bore the brunt of the correction, dragging the benchmark indices lower. The flight to safety was evident as investors moved towards traditional safe havens like gold, which saw its price rally during the period of equity market distress.

The market crash was the result of a perfect storm where negative domestic triggers collided with severe international headwinds. The dependence on foreign capital made the Indian market particularly vulnerable to the global risk-off sentiment. The STT hike in the budget acted as a domestic trigger that gave investors a reason to sell, a decision made easier by the already fragile global backdrop.

Conclusion: A Cautious Path Forward

The sharp correction in early 2026 served as a stark reminder of the Indian market's sensitivity to both domestic policy and global economic currents. While the immediate damage was significant, with trillions in wealth erased, the focus now shifts to future triggers. Investors and traders will be closely monitoring for any clarity on US trade policies, the final implementation of the budget's tax proposals, and the upcoming commentary from the Reserve Bank of India. Until a stable global and domestic policy environment emerges, the market is expected to remain volatile and trade with a cautious bias.