The continued sell-off in the Indian equity market has wiped out a staggering ₹94 lakh crore of investor wealth in the past five months, with both the Sensex and the Nifty plummeting up to 16% from their lifetime highs touched in September 2024. In calendar year 2025, the BSE Sensex and the NSE Nifty have lost up to 7%, erasing ₹62 lakh crore of investor wealth. The market capitalisation of BSE-listed companies slipped to ₹384 lakh crore at the close on trade on February 28, from the record high of ₹478 lakh crore in September 2024.

February has emerged as the worst month for the Indian stock market since the Covid-19 pandemic, with the equity benchmarks falling nearly 6% and eroding investors' wealth by ₹40 lakh crore. Of the 20 trading sessions in February, equity benchmark index Nifty has consistently ended in negative terrain, barring five occasions, reflecting a persistent bearish sentiment. During this period, the Nifty50  lost 1,357 points, or 5.9%, and the Sensex plunged 4,300 points, or 5.5%, as the market faced headwinds amid relentless selling by foreign institutional investors (FIIs) and mounting economic uncertainty amid U.S. tariff concerns.

Longest losing streak in 29 years

The domestic bourses have been under selling pressure since the beginning of October, and on Friday, they completed five consecutive months of fall—the first time it has happened in 29 years. This is the first time since 1996 that the Nifty50 logged losses for five straight months, a rare incidence that has happened only twice after the National Stock Exchange (NSE) benchmark was launched in July 1990.

The Nifty recorded its worst monthly performance in 1995, when the benchmark index posted its longest losing streak of eight months, from September 1995 to April 1996, falling over 31% during this period. This was followed by five months of continued decline in July-November in 1996, eroding its market value by 26%. The index also logged losing streaks of four months on three occasions—October-January 1991, May-August 1998, and June-September 2001.

Key factors behind unprecedented market crash 

Trump's trade tariffs & the impact on currency

U.S. President Donald Trump's pledge to impose reciprocal taxes on trading partners, including India, has propelled U.S. bond yields and boosted demand for dollar-denominated assets. This has triggered capital outflows and dampened foreign investors' demand for Indian financial assets like equity and rupee. Last week, the rupee slipped to its lowest level of 87.95 against the dollar, depreciating by 4.65% against the U.S. currency on a YTD basis.

The rupee registered its fifth straight monthly fall in February, mainly due to the growing strength of the dollar in the global market and a negative trend in domestic equities. The domestic currency has inched close to 88 per dollar-level after Trump announced a 25% tariff on all steel and aluminium imports and threatened to impose reciprocal tariffs, sparking trade war fears.

Sustained FII outflows

At a time when the domestic market has been impacted by Trump's tariff threats, economic growth slowdown, and weak earnings, sustained selling by foreign investors has triggered a ripple effect in Indian equities. While the foreign investor sell-off started in October last year amid valuation concerns and subdued economic growth, it intensified in 2025 after the U.S. government announced tariffs against Canada, Mexico and China, raising fears about a global trade war.

On February 28, FIIs sold Indian equities worth ₹11,639 crore, logging their highest single-day sell-off during the month. For the month, the total foreign outflows amounted to ₹34,574 crore, while they pulled out over ₹1 lakh crore in 2025 and over ₹1 lakh crore since September last year.

The China effect

The improving market prospects of Chinese equities amid the government’s initiaitives to revive the Chinese economy are also hurting Indian equities. “If the Chinese government’s new initiatives attract positive responses from the FIIs, it would mean more bad news for Indian markets. More money will flow into Chinese stocks through the Hang Seng exchange,” said V.K. Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

It is notable that the price-to-earnings (P/E) ratio of the Hang Seng index is only around 12 compared to the 18.5 one-year forward PE in India. The higher valuation on Indian stocks, especially mid- and small-caps, would keep FIIs on the edge. However, the silver lining is that large-caps are fairly valued in India, which can attract calibrated buying in this segment.

Growing demand for safer assets

Given the volatility in the equity market, investors’ appetite for riskier assets such as equity has declined significantly. They are increasingly investing in safer assets that are considered low-risk and stable in value, like government bonds, high-quality corporate bonds, fixed deposits, and gold.

In recent times, gold prices have been consistently hitting new highs, driven by strong safe-haven demand amid fears of inflation linked to the U.S. President's tariff plans and inflows into the world's top gold-backed exchange-traded fund. The uncertainties surrounding global economic growth, geopolitical instability, and central bank reserve diversification have also boosted investors’ appetite for bullion.

In the international markets, spot gold touched an all-time high of $2,956.37 per ounce on February 24, 2025. After the strong finish in which gold prices rallied by 27% over 2024, the uptrend has extended in to 2025, rising 10.3% year-to-date (YTD).

The local gold prices are expected to rise to the Rs 90,000 per 10 gm-level in H12025 and to the Rs 95,000 per 10 gm-level by December 2025 with the risk of an overshoot, says a report by ICICI Bank.

What lies ahead for the market?

With India’s Q3FY25 GDP data meeting Street expectations, this could provide temporary relief to the market. The December quarter GDP growth was recorded at 6.2%, backed by higher consumption, primarily led by the government, while capital formation was stable versus the previous quarter. For FY25, GDP growth has been pegged at 6.5%, implying Q4 growth at 7.6%, which appears to be a tall ask.

“The latest GDP figures indicate that economic growth is rebounding in India. If corporate earnings follow suit the market will rebound and FIIs are likely to turn buyers. This will happen when leading indicators suggest a turnaround in corporate earnings," said Vinod Nair, head of research at Geojit Financial Services.

In the next week, investors will be closely watching key domestic and global events, including the U.S. tariff policy and macro data such as manufacturing PMI. In the near-term, market conditions are expected to remain weak, with a gradual recovery anticipated as earnings improve from Q1FY26 and global trade policy uncertainties subside, said Nair.

Trivesh D., Chief Operating Officer, Tradejini, believes that investors should focus on identifying fundamentally strong, resilient stocks rather than rushing in. With FIIs maintaining over 80% short positions in index futures and the India VIX at unusually low levels, any sharp rally might face resistance. “The key would be to watch how Nifty reacts to its support zones and whether DIIs continue their buying momentum. Stability is the priority before positioning for the next leg up,” he said.

According to market analysts, the Nifty is hovering near the critical 22,000 level, the last line of defence for bulls. A break below this level could trigger a “deeper correction” in Nifty and the next major support stands at 21,500, said Dhupesh Dhameja, Derivatives Analyst at SAMCO Securities. He believes that the Nifty50 could find support at 22,000, and immediate resistance at the 22,500 level.

Echoing the same sentiment, Rupak De, Senior Technical Analyst at LKP Securities, said the Nifty is expected to find support around the 21,800-22,000 level in the near term. “A sustained move above 21,800 could lead to a significant recovery, while failure to hold this level may trigger another sharp decline."

For short-term traders, 22,200 and 73,500 would be the key levels to watch out for the Nifty and the Sensex, respectively, said Amol Athawale, VP-Technical Research, Kotak Securities.

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