SENSEX, NIFTY50 Drop 12% from Record Highs: Key Factors Behind the Fall

The stock market in India has been struggling, with major indices like the NIFTY50 and SENSEX falling by nearly 1% on Monday. This drop follows a broader correction in the Indian markets, continuing the negative trend from last week. At 10:30 am, the NIFTY50 was down by over 200 points, trading at 23,210, while the SENSEX fell 700 points, settling at 76,725. This decline follows a 2.4% drop in the indices the previous week, driven by a mix of global and domestic factors weighing down on the markets.

One of the main reasons for this fall is the continuous selling by Foreign Institutional Investors (FIIs), who have significantly reduced their investments in Indian stocks. In 2024, FIIs’ net buying dropped by 99%, from ₹1,20,000 crore in 2023 to just ₹427 crore. So far in 2025, FIIs have sold more than ₹18,000 crore worth of stocks in the secondary markets. The reduced interest from foreign investors has contributed to the overall market downfall.

Another key factor affecting the Indian stock market is the rising US treasury yields. These yields have increased sharply, from 3.6% in September 2024 to 4.7% in January 2025, a rise of 32% in just four months. As a result, investors are shifting their focus from emerging markets like India to safer US treasury investments, where they can get better returns. This movement of money is a major cause of the outflow of funds from Indian markets, and it's adding more pressure on the stock indices.

Additionally, the increasing value of the US dollar has hurt the Indian economy. When foreign investors pull money out of India, it weakens the Indian rupee, which makes imports more expensive and raises inflation. In 2024, the Indian rupee depreciated nearly 4% from its peak in September. This devaluation has led to higher costs for goods, especially oil, and it has made the Indian market less attractive for foreign investors. The continued outflow of foreign capital is a result of this situation.

The Indian economy has also faced a slowdown, as the country’s GDP growth for the financial year 2025 was revised down to 6.6%. This is the lowest growth rate in four years and much lower than the earlier prediction of 7.2% by the Reserve Bank of India. The slowdown can be traced to slower credit growth, lower consumer demand, and a drop in both public and private investments. As interest rates remain high, borrowing becomes more expensive, affecting credit growth, which has decreased to 11% in 2024 from a high of 16% in 2023.

Indian stock markets are also facing high valuations, especially in the mid-cap and small-cap sectors. This means that stocks are expensive when compared to their actual growth, leading to lower investor interest. With earnings growth being weaker than expected, especially during the ongoing earnings season, there is less reason for investors to pay high prices for these stocks.

Despite all this, India remains the fastest-growing major economy in the world, with a GDP growth of 5.4% for the second quarter of 2025. However, the mass exit of foreign capital continues to affect the markets. While FIIs have been selling heavily in the secondary market, they have still been buying into Indian companies through primary market offerings, such as Qualified Institutional Placements (QIPs) and Qualified Institutional Buyers (QIBs).

The global economic situation is also challenging, with the US and China facing serious problems. There are concerns about a potential trade war, which makes the outlook for the markets look uncertain in the short term. Still, some investors are hopeful that the upcoming Indian budget might bring economic measures that could help improve the market situation.

In conclusion, the Indian stock market is facing a tough period due to several factors, including foreign selling, rising US treasury yields, a weaker rupee, slow GDP growth, and high stock valuations. While the economy is growing, the lack of foreign investments and the weak global economic environment continue to put pressure on the market. However, some investors are still optimistic that the Indian government may announce measures in the upcoming budget to boost the economy and revive the markets.

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