Sensex Dips 800+ Points, Nifty 50 Nears 22,500: 5 Key Reasons Behind Indian Stock Market Selloff

Falling for the fifth consecutive session, the Indian stock market benchmark—the Sensex—crashed over 800 points on Monday, February 24, amid weak global cues, persisting concerns over a potential trade war between the US and other major economies of the world, and relentless foreign capital outflow.

The Sensex opened at 74,893.45 against its previous close of 75,311.06 and dropped 924 points to the level of 74,387.44 during the session. The Nifty 50 opened at 22,609.35 against its previous close of 22,795.90 and cracked 1.2 per cent to hit the level of 22,518.80.

Finally, the Sensex closed 857 points, or 1.14 per cent, down at 74,454.41, while the Nifty 50 settled 243 points, or 1.06 per cent, lower at 22,553.35.

The sell-off was widespread as the BSE Midcap index fell 0.78 per cent and the BSE Small cap index dropped 1.31.

The overall market capitalisation of BSE-listed firms dropped to nearly ₹398 lakh crore from about ₹402 lakh crore in the previous session, making investors poorer by about ₹4 lakh crore in a single session.

Sectoral indices today

Most sectoral indices suffered significant losses on Monday, with Nifty IT (down 2.71 per cent), Metal (down 2.17 per cent) and Oil & Gas (down 1.10 per cent) falling 1-2 per cent.

However, Nifty FMCG (up 0.36 per cent), Auto (up 0.22 per cent) and Pharma (up 0.02 per cent) defied weak market sentiment to end with gains.

5 key reasons behind the Indian stock market selloff

A confluence of factors is keeping the Indian stock market under pressure. Let’s take a look at five crucial factors behind the recent market selloff:

Concerns over a widespread trade war

Due to US President Donald Trump’s tariff policies, concerns over a growing tussle between the world’s largest economy and other major economies have been mounting. Experts fear that Trump’s tariff moves will trigger a widespread trade war, which would significantly blow global economic growth, which is already battling sticky inflation and growth slowdown.

Massive FPI selling

Foreign portfolio investors (FPIs) have been relentlessly selling Indian equities since October last year amid elevated market valuations, rising US bond yields, and signs of an economic slowdown.

“The market is facing headwinds from relentless FII selling and global uncertainties relating to Trump tariffs,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Data show that FPIs sold Indian equities worth nearly ₹37,000 crore in the cash market in February (until the 21st). Overall, they have sold Indian stocks worth over ₹3 lakh crore since October 2024.

The China factor

The Chinese stock market has seen a healthy rise in the last few days, acting as an additional headwind for the Indian stock market. The attractive valuation of Chinese stocks and the still-stretched valuation of Indian stocks have triggered a flow of money from the Indian market to the Chinese market.

The Chinese government has announced several measures to support its stock market and economy over the last few months. Experts believe these measures will augur well for the world’s second-largest economy and mitigate the Trump tariff blows.

“The sharp surge in Chinese stocks is another near-term headwind. The ‘sell India, buy China’ trade may continue for some time since Chinese stocks continue to be attractive,” said Vijayakumar.

Macroeconomic jitters

Experts point out the signs of a slowdown in the Indian economy, which weighs on investors’ risk appetite.

The resilience of India’s economic growth was the key driver behind the stock market reaching record highs last year. However, recent macroeconomic data and revised estimates from leading agencies suggest that the economy is now experiencing a slowdown.

Moody’s Analytics believes India’s GDP growth rate will slow to 6.4 per cent in 2025 from the 6.6 per cent recorded in 2024 due to new US tariffs and softening global demand, which will weigh down on the country’s exports.

Growth-inflation dynamics and fading expectations of a US Fed rate cut

Recent data indicates that the US is grappling with sticky inflation while its economic growth has moderated. This troubling combination of stubborn inflation and weakening growth poses a significant challenge for global markets.

According to Reuters, “S&P Global’s flash US Composite PMI Output Index, which tracks the manufacturing and services sectors, fell to 50.4 in February. That was the lowest reading since September 2023 and was down from 52.7 in January.” A reading above 50 indicates expansion in the private sector.

Meanwhile, the US Consumer Price Index (CPI) rose 0.5 per cent or 50 basis points to 3 per cent over the last year in January.

According to a Bloomberg report, the minutes of the Federal Open Market Committee’s (FOMC) January 28-29 meeting showed the US Federal Reserve is cautious about adjusting interest rates, emphasising the need for further progress on inflation before making any changes.

Experts point out that the evolving inflation-growth dynamics in the US have created much uncertainty regarding the interest rate trajectory in the world’s largest economy.

“In the US, long-term inflation expectations are rising and, therefore, the expected rate cut by the Fed is unlikely to materialise. The Fed might even turn hawkish, impacting US stock markets. If this happens and the US bond yields start declining, FIIs may cease to be sellers in India and may even resume buying. The near-term scenario is highly uncertain,” said Vijayakumar.