The Indian equity benchmarks have been declining for quite some time now, and in the ongoing selloff, the SENSEX has crashed as much as 13%, and the NIFTY50 index has collapsed 12% from the record highs they touched in December last year.
The selling pressure has been intense among the mid- and small-cap shares as the NIFTY Midcap 100 and NIFTY Smallcap 100 indices have tumbled 20% from record highs they touched in December 2024.
The correction has led to a massive erosion of investor wealth, as wealth worth ₹44.69 lakh crore has been wiped out during the ongoing downturn in the markets. The sentiment, which began deteriorating around October 2024, has remained subdued amid rising valuation concerns and an increasingly uncertain global environment, analysts said.
A key trigger behind the shift in investor sentiment was the imposition of tariffs by Donald Trump on goods exported to the US from its trading partners, including India. Additionally, geopolitical tensions between India and Pakistan in May last year added a layer of uncertainty for investors.
Persistent FII outflows
Selloff by foreign institutional investors (FIIs) has also added to the weak sentiment, analysts noted. FIIs have offloaded shares worth ₹2.57 lakh crore since 2024, data from the National Securities Depository Limited showed.
The exodus was driven by a combination of factors, including a weakening rupee and a shift of global capital toward safer assets such as US bonds.
Analysts also point to a shift in global fund flows, with money moving out of Indian equities and into markets like South Korea and Taiwan, particularly in sectors linked to artificial intelligence and advanced technologies.
The latest wave of panic selling was triggered by the escalating geopolitical tensions in the Middle East. A coordinated military attack by the United States and Israel against Iran has raised fears of a broader conflict, pushing crude oil prices sharply higher in international markets.
The situation worsened after Iran reportedly retaliated by attempting to block the Strait of Hormuz, through which a significant portion of the world’s oil supply moves. Any disruption in this route has immediate implications for global energy prices and inflation expectations.
Further escalation came as Iran accused Israel of targeting facilities linked to the massive South Pars gas field, one of the largest natural gas reserves in the world. In response, Iran reportedly launched missile attacks on energy infrastructure in Qatar and Saudi Arabia, intensifying fears of a wider regional conflict, news agency Reuters reported.
Meanwhile, latest reports suggest that the Trump administration is considering deploying additional US troops in the Middle East, with options ranging from securing oil tanker routes to expanding military operations against Iran.
Such developments have heightened uncertainty and contributed to volatility across global financial markets, news agency Reuters reported.
Asian markets mirrored the weak sentiment on Thursday, trading sharply lower following a negative close on Wall Street. The downturn was exacerbated after the Federal Reserve kept interest rates unchanged, signalling continued tight financial conditions amid persistent inflation concerns.
Surging crude oil is a big negative for Indian macroeconomic fundamentals, as India imports 90% of its total crude oil requirements.