The mood on Dalal Street has turned decisively cautious as weak global cues, rising global bond yields and persistent foreign fund outflows weighed heavily on sentiment. Indian equity markets ended in negative territory on all five sessions this week, with sustained selling pressure dragging benchmark indices lower and unsettling investor confidence.

Over the week, the BSE Sensex slumped from 85,439 on January 5 to 83,570 by January 9, marking a cumulative decline of 2,186 points, or about 2.6%. In a similar trend, the NSE Nifty tumbled from 26,250 to 25,695 over the same period, registering a loss of 645 points, or nearly 2.5%. The sell-off eroded nearly ₹14 lakh crore in investor wealth as cumulative market cap of BSE-listed companies dropped to ₹467.76 lakh crore from ₹482.01 crore at the end of trade on January 2, 2025.

According to Ponmudi R, CEO of Enrich Money, the Indian equity markets remained under sustained pressure throughout the week, weighed down by elevated global trade uncertainty following renewed tariff-related remarks from U.S. President Donald Trump. “The possibility of higher import duties rekindled concerns over disruptions to global trade flows, dampening risk appetite across emerging markets, including India.”

Five factors that triggered sell-off in the equity market:

Sustained FII selling pressure

Foreign portfolio investors continued to pare exposure to Indian equities, selling shares worth ₹8,018 crore so far in January. Daily data shows that FIIs have stayed on the sell side across all sessions this week, with the largest outflow of ₹3,367 crore recorded on January 8.

In contrast, DIIs have emerged as strong counterweights, posting net purchases of ₹12,307 crore month to date. Domestic flows have remained positive on all four trading days, led by robust buying on January 8 and 7, when net inflows exceeded ₹3,700 crore and ₹2,800 crore, respectively.

Uncertainty over U.S. tariff ruling

Markets turned cautious ahead of an awaited US Supreme Court verdict on the legality of tariffs imposed during former President Donald Trump’s tenure. A ruling against the tariffs could potentially force the U.S. government to refund close to $150 billion to importers, injecting fresh uncertainty into global trade dynamics and investor positioning.

Fresh concerns on trade tensions

Investor nerves were further frayed after renewed tariff rhetoric from Trump, including suggestions of higher duties on Indian goods in response to New Delhi’s continued purchases of Russian crude.

According to Ajit Mishra – SVP, Research, Religare Broking, market sentiment stayed subdued amid elevated geopolitical and global trade-related concerns, particularly renewed uncertainty around potential U.S. tariff actions and related Supreme Court developments.

“Persistent foreign institutional selling and weakness across broader risk assets further compounded the negative bias, while heavyweights also added to the downside pressure,” he said.

Weak rupee          

The rupee depreciated sharply, falling 22 paise to 90.11 against the US dollar on Friday, tracking the decline in domestic equities and ongoing foreign fund outflows. According to Jateen Trivedi, VP – Research (Commodity & Currency) at LKP Securities, volatility in the dollar index—driven by key US macro data—has compounded the pressure, while elevated commodity prices have pushed up the import bill. He expects the USD/INR pair to trade in the 89.75–90.50 range in the near term.

Earnings caution amid global headwinds

With the Q3 earnings season around the corner, investors have adopted a wait-and-watch stance amid weak global cues and rising bond yields. "The Indian market remains in a consolidation phase due to weak global cues, rising global bond yields, and persistent FII outflows, all of which weigh on sentiment ahead of the positive Q3 earnings outlook. Domestic risk-off sentiment has intensified amid uncertainty surrounding US-India tariff negotiations and escalating geopolitical tensions,” said Vinod Nair, Head of Research, Geojit Investments.

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