Stock market crash: India’s domestic equity benchmarks, Sensex and Nifty 50, experienced their worst day in approximately five months on Friday, February 28. The NSE benchmark recorded its longest monthly losing streak in the last 29 years (since 1996), dragged down by foreign capital outflows fueled by fears of U.S. tariffs.
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The BSE benchmark, which reached a record high of 85,978.25 points on September 27 of last year, has declined by 12,780.15 points, or 14.86 percent, from that peak. The Nifty has fallen 4,152.65 points, or 15.80 percent, from its all-time high of 26,277.35 on September 27, 2024. Investors’ wealth plummeted by ₹9 lakh crore on Friday, due to the drop in Indian equities and the weakening of the rupee.
Reasons for such a decline:
- Global Trade Tensions: Rising trade disputes, especially with the United States, sparked fears of a possible global trade war. U.S. President Donald Trump’s declaration of a 25% tariff on imports from Canada and Mexico, set to take effect on March 4, coupled with retaliatory tariffs, raised market uncertainties.
- Currency Depreciation: The Indian rupee experienced its fifth consecutive monthly decline in February, reaching a historic low of 87.95 against the U.S. dollar. This depreciation was driven by foreign portfolio outflows and increased hedging demand, adding to the negative sentiment in the equity markets.
- Foreign Investor Outflows: The mix of global uncertainties and a stronger U.S. dollar led foreign investors to pull back their funds from Indian equities. Since September 2024, foreign investors have sold around $25 billion in Indian stocks, worsening the market’s downward trend.
- Sector-Specific Pressures: Key sectors such as Information Technology and Auto faced substantial sell-offs. The Nifty IT index, for instance, suffered losses up to 6.5%, influenced by declines in global tech stocks. Similarly, the Nifty Auto Index recorded a nearly 4% decline, reflecting broader concerns within the automotive industry.
These combined factors led to a significant erosion of investor wealth, with the market capitalization of BSE-listed companies decreasing by ₹9.61 lakh crore during the month. The convergence of global economic challenges and domestic market vulnerabilities underscores the interconnected nature of modern financial systems and their susceptibility to multifaceted pressures.
The Path Ahead:
- Global Market Stability: A potential rebound in Indian equities will depend on how global economic conditions evolve, particularly in the U.S. and China. Any resolution to trade tensions and stabilization in global markets could restore investor confidence.
- Rupee and Interest Rates: The depreciation of the Indian rupee has made foreign investments costlier, but if the Reserve Bank of India (RBI) intervenes effectively and global interest rate hikes slow down, it may help curb outflows and stabilize markets.
- Domestic Economic Growth: India’s economic fundamentals, including GDP growth and inflation control, will play a key role in shaping market sentiment. Strong macroeconomic data, supportive government policies, and corporate earnings recovery can help in market stabilization.
Overall, while February 2025 was a tough month for the stock market, the long-term outlook depends on global economic stability, domestic policy measures, and investor sentiment. Markets may recover as uncertainties ease and confidence returns.