The tension on Dalal Street escalated once again on Wednesday as the benchmark indices saw another sharp decline in early trade. The S&P BSE Sensex plunged by over 850 points before recovering slightly to trade 748.13 points lower at 75,545.47 by 10:23 am. Similarly, the NSE Nifty50 dropped nearly 1%, reflecting widespread weakness across the broader market.
The market capitalisation of BSE-listed companies shrank by Rs 6 lakh crore during early trade, following a massive Rs 10 lakh crore loss in the previous session. If the sell-off persists, the total erosion over the past two days could reach Rs 16 lakh crore, significantly impacting investors’ wealth.
Several factors are driving this sharp market decline:
1. Trump’s Tariffs Spark Global Trade War Fears
US President Donald Trump’s decision to raise tariffs on steel and aluminium imports to 25% from 10% has sparked concerns of a global trade war. The move, which affects multiple global economies, could also have a ripple effect on India, with potential dumping and increased trade barriers. Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, highlighted that Trump’s shift from targeting specific countries to imposing tariffs on all nations has heightened market fears. The European Union’s countermeasures have raised the probability of a full-blown trade war, keeping markets on edge as investors await the situation’s outcome.
2. FII Selling Accelerates
Foreign institutional investors (FIIs) have been increasing their selling activity, contributing to the market’s woes. FII outflows have already reached Rs 1 lakh crore this year, further dragging down sentiment. Prashanth Tapse, Senior VP of Mehta Equities Ltd, noted that FII selling and ongoing concerns over Trump’s tariff policies are major factors weighing on the market.
3. Reliance and Other Heavyweights Under Pressure
The sell-off has also hit major index heavyweights, including Reliance Industries Limited (RIL), Axis Bank, HDFC Bank, and Bajaj Finance, which have all faced significant pressure. RIL, India’s largest company by market capitalization, fell over 2%, worsening the broader market decline.
4. Inflation Data Adds to Market Anxiety
Investors are also anxiously awaiting inflation data from both the US and India. The US inflation figures, due later in the day, could impact expectations about future Federal Reserve rate cuts. Dr. Vijayakumar warned that higher tariffs could derail hopes of a rate cut by the US central bank, especially if inflation rises as a result of the tariffs, leading to a hawkish Fed stance. Domestically, India’s retail inflation for January is expected to ease to a five-month low of 4.6%, which may provide some relief.
With ongoing uncertainty surrounding US trade policies and foreign fund flows, the volatility on Dalal Street is expected to persist as investors navigate these turbulent times.
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