Sensex extends losses to 6th session in a row; what weighs on Indian stock market? EXPLAINED with 5 crucial reasons

Extending its losing streak to the sixth consecutive session, the Indian stock market benchmark Sensex crashed over 900 points in intraday trade on Wednesday, February 12, amid mixed global cues. The 30-share pack crashed 905 points from its previous close of 76,294 to the level of 75,388, while the Nifty 50 touched 22,798 on the downside, falling over 1 per cent.

However, both indices pared losses and closed with milder losses. Eventually, the Sensex settled 123 points, or 0.16 per cent, down at 76,171, while the Nifty 50 closed 27 points, or 0.12 per cent, lower at 23,045.

The mid and small-cap segments continued their underperformance as the BSE Midcap and Smallcap indices ended with losses of 0.45 per cent and 0.49 per cent, respectively.

Among the sectoral indices, Nifty Bank rose 0.15 per cent and the Financial Services index increased by 0.45 per cent.

Nifty PSU Bank (up 0.84 per cent), Private Bank (up 0.24 per cent), and Metal (up 0.67 per cent) indices also ended in the green.

Among the losers, Nifty Realty (down 2.74 per cent) suffered a strong loss, followed by Oil and Gas (down 0.80 per cent) and Auto (down 0.74 per cent).

What drives the Indian stock market down?

In these six days of the market rout, the Sensex has plunged 2,413 points, or 3 per cent, while the Nifty 50 has lost 694 points or 2.92 per cent.

Here are five key factors that are behind the fall in the Indian stock market:

1. Caution ahead of the new Income Tax Bill

To some extent, caution ahead of the new Income Tax Bill could be a reason behind the current market selloff.

According to reports, the new Income-Tax (I-T) Bill, announced by Finance Minister Nirmala Sitharaman during her Budget speech on February 1, is likely to be tabled in the Lok Sabha on Thursday.

There are fears of higher tax rates on financial securities under the new I-T Bill.

“Unsubstantiated fears regarding higher tax rates on financial securities due to the implementation of the New Income Tax Bill also triggered panic selling among weak market participants. Some of the selling can be linked to margin calls on funded positions,” said Devarsh Vakil, Head of Prime Research, HDFC Securities.

2. US Fed Chair Jerome Powell’s hawkish comments

Hopes of additional US Fed rate cuts this year were dashed after the US Federal Reserve Chair Jerome Powell reaffirmed the central bank’s cautious stance on interest rates during his testimony before Congress on Tuesday.

Powell stated that the central bank is not under any pressure to cut rates in the near future as inflation remains elevated while the job market remains strong.

3. Aggressive FPI selloff

Foreign portfolio investors (FPIs) have been aggressively selling Indian equities since October last year. Cumulatively, they have offloaded Indian stocks worth over ₹2.8 lakh crore since October.

A confluence of factors, including stretched valuation of the Indian stock market, signs of growth losing momentum, weak quarterly earnings, the rupee’s weakness, stronger US dollar and elevated bond yields, have triggered a massive foreign capital outflow from the Indian stock market.

4. Trump’s tariff tantrums

US President Donald Trump’s tariff tantrums are a key reason behind the current market selloff. Markets worldwide are concerned about the possibility of a widespread trade war due to tariff policies.

“Trump’s tariff tantrums have impacted the markets for several days. Trump’s move away from targeting specific countries like Mexico, Canada, and, to a lesser extent, China and moving to import tariffs on steel and aluminium in all countries has aggravated the concerns. The European Union’s declaration that they will retaliate with counter-tariffs has raised the probability of a full-blown trade war. How this will pan out remains to be seen,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

5. Weak earnings, elevated valuations

Indian corporates have reported weaker quarterly earnings for the last three quarters, making valuations unsustainable and triggering a sharp selloff by foreign investors. With sluggish earnings, the market is struggling to sustain elevated valuations.

“While robust earnings growth previously justified their multiple re-rating, the recent slowdown in earnings is leading to a partial moderation of these elevated valuations,” said Varun Fatehpuria, the founder and CEO of Daulat Finvest Private Limited.

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