Sensex crashes 800 points; Nifty 50 nears 24,500: Why is Indian stock market falling? EXPLAINED

By Admin

02 Jun, 2025

On Monday, June 2, Indian stock markets witnessed a significant downturn, triggering investor concerns across the board. The Sensex tumbled nearly 800 points, while the Nifty 50 dropped close to 24,500, making this one of the steepest falls in recent sessions. Despite the chaos in large-cap indices, BSE Midcap and Smallcap indices managed to stay afloat, each gaining about 0.30% in the morning session.

Let’s break down the reasons behind this sharp decline and what it could mean for investors.

1. Trump's Tariff Shock Rattles Global Markets

The primary trigger for Monday’s selloff was US President Donald Trump’s tariff announcement. He proposed doubling tariffs on imported steel and aluminium to 50% starting June 4. This aggressive stance shook investor sentiment globally, causing key Asian markets such as Japan’s Nikkei and Hong Kong’s Hang Seng to fall by 1–2%.
According to VK Vijayakumar, Chief Investment Strategist at Geojit Investments, this development is a stark reminder that trade tensions remain a risk, creating turbulence in global financial markets.

2. Profit Booking in Large-Cap Stocks

Another significant factor was profit booking in heavyweight stocks, notably HDFC Bank and Reliance Industries. After strong rallies, investors seem to be reallocating funds into mid and small-cap segments, which have shown improved earnings performance.
Vinit Bolinjkar of Ventura noted that the surge in small-cap activity is not just speculative genuine earnings growth in sectors like manufacturing, railways, defence, and infrastructure is fueling this trend.

3. Decline in FPI Buying

Foreign portfolio investors (FPIs), who had been steadily buying into Indian equities, have now reduced their exposure. In the last session alone, FPIs sold equities worth ₹6,449.74 crore in the cash segment.
The combination of a rising dollar index and high valuations of Indian stocks may be causing global investors to pause, impacting overall market sentiment.

4. Absence of Fresh Domestic Triggers

While India’s long-term growth story remains intact, the lack of new positive domestic triggers has kept investors cautious. Experts say that until there’s stronger evidence of earnings growth or positive geopolitical developments, the market may continue to drift sideways.
Although Q4FY25 earnings were slightly better than anticipated, forward earnings projections are weak, with more downgrades than upgrades, according to Motilal Oswal Financial Services.

5. Technical Outlook: Nifty's Range-Bound Movement

Technically, the Nifty 50 is expected to remain range-bound between 24,650 and 24,900.
Shrikant Chouhan from Kotak Securities suggests that a breakout above 24,900 could drive the index toward 25,150, while a drop below 24,650 may shift sentiment negatively and trigger a retest of the 24,450 level.
The 20-day Simple Moving Average (SMA) near 24,650 is seen as a critical support. A decisive breach of this level could even lead to further downside towards 23,900, while an upside breakout might open the path to 25,650.

What Should Investors Do Now?

In the current environment, it is crucial for investors to:

• Monitor technical levels closely, especially the 24,650 and 24,900 marks.
  
  

• Focus on mid and small-cap stocks with strong fundamentals.
  
  

• Stay updated on global trade developments, especially around tariffs.
  
  

• Be cautious of FPI activity trends, which can rapidly change sentiment.
  
  

Conclusion

The sharp fall in the Indian stock market is a result of global trade jitters, profit booking, sluggish FPI activity, and a lack of strong domestic triggers. With the Nifty caught in a narrow range, investors should brace for short-term volatility but stay focused on long-term fundamentals that continue to support India's growth story.