Indian stock market faces significant losses with Sensex & Nifty falling due to weak global cues, Trump tariffs, and FII outflows. Consumer durables & IT stocks showed resilience.
The Indian stock market experienced a significant downturn on Monday, February 3, with both the Sensex and Nifty indices registering considerable losses. The Sensex fell over 700 points, while the Nifty 50 dropped below 23,250 during intraday trading. This decline occurred amidst weak global cues and apprehensions regarding the Union Budget 2025’s capex allocation, which led to a sharp sell-off in capex-related stocks.
However, the market saw some buying interest towards the end of the trading session, which helped the indices close above crucial levels. The Nifty 50 concluded the day with a 0.52% drop, settling at 23,361, and the Sensex closed at 77,186, a 0.46% decrease compared to the previous trading session.
Broader Market Performance
The broader market experienced even greater losses. The Nifty Smallcap 100 index declined by 2.13%, reaching 16,617, while the Nifty Midcap 100 index fell by 0.93%, closing at 52,988.
Sectoral Performance
Among sectoral indices, BSE Capital Goods was the worst performer, dropping 4.29%. Other notable losers included BSE Power, Nifty PSE, Nifty Energy, and BSE Oil & Gas, all of which fell between 2.5% and 3.3%.
On the other hand, Consumer Durables stocks continued their upward trend following the budget announcement, driven by expectations that a cut in income tax would increase discretionary spending. The BSE Consumer Durables index rose by 0.74%. IT stocks also managed to close in the green, with the Nifty IT index gaining 0.68%.
Factors Influencing Market Decline
Several factors contributed to the market’s negative performance on February 3:
1. Weak Global Cues
The Indian stock market responded to negative global signals. Major Asian markets experienced losses after US President Donald Trump announced tariffs on Canada, Mexico, and China. These tariffs fueled concerns about a potential trade war, which could negatively impact global economic growth. Japan’s Nikkei and Korea’s KOSPI both fell by 3%.
According to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, the market faces pressure from Trump’s tariffs and the resulting global uncertainty, despite the budget.
2. Impact of Trump’s Tariffs
President Trump imposed 25% tariffs on Canada and Mexico and a 10% levy on imports from China. Experts suggest that these tariffs could lead to a global trade war, potentially disrupting the global economy.
Vijayakumar also noted that the tariffs on Mexico and Canada were imposed for non-trade reasons, such as immigration and illicit trade. China has not imposed retaliatory tariffs on imports from the US and is instead moving to challenge the US action at the WTO.
3. Surge in Dollar Index and Rupee Depreciation
The Indian rupee fell to a record low on Monday, breaching 87 per US dollar. The dollar strengthened against other currencies after Trump’s announcement of tariffs. Vijayakumar stated that the rise in the dollar index to above 109.6 would result in further selling by foreign institutional investors (FIIs), adding to market pressure.
4. Caution Ahead of RBI MPC
Following the Union Budget, attention has shifted to the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) meeting. Experts anticipate that the RBI might offer further relief to consumers by reducing interest rates by 25 bps, following the government’s income tax changes intended to boost consumption.
5. Continuous Foreign Capital Outflow
Consistent selling by FIIs has been a key factor in the market’s decline since October 2024. The Nifty 50 has experienced monthly declines since October due to the continuous offloading of Indian equities by FIIs. From October 1, 2024, to February 1, 2025, FIIs have sold Indian stocks worth approximately ₹2.7 lakh crore.
The stretched valuation of the Indian stock market, weak quarterly earnings, and increasing US dollar and bond yields have been causing foreign investors to withdraw from the Indian market since October.
Several stocks experienced significant losses in Mumbai trading on Monday. On the BSE, Titan Intech (down 20.00%), Ceejay Finance (down 14.50%), Innokaiz India (down 11.97%), Stove Kraft (down 11.80%), and Integra Capital (down 11.60%) were among the top losers. In the Nifty pack, 15 stocks closed in the green, while 35 stocks closed in the red. On the BSE, various stocks hit their 52-week lows and highs.
Sources: https://www.livemint.com/market/stock-market-news/sensex-crashes-700-points-why-is-the-indian-stock-market-falling-today-11738553335670.html
https://m.economictimes.com/markets/stocks/stock-watch/sensex-falls-these-stocks-fell-5-or-more-in-mondays-session/articleshow/117887819.cms
https://upstox.com/news/market-news/stocks/sensex-nifty-50-tank-up-to-1-trump-s-tariff-and-other-key-factors-behind-fresh-sell-off-in-market/article-143896/