Snapping a three-session winning streak, Indian equity benchmarks closed sharply lower on Friday as broad-based selling gripped Dalal Street. The sell-off intensified in the final hours of trade amid weak global cues, particularly escalating geopolitical tensions between the U.S. and Iran, which pushed Brent crude to its year-to-date high.

Sentiment was further dented by uncertainty surrounding the U.S. Federal Reserve’s rate-cut trajectory, continued weakness in the rupee against the U.S. dollar, and subdued foreign institutional participation due to the Lunar New Year holiday across key Asian markets.

The BSE Sensex plunged 1,236.11 points, or 1.48%, to settle at 82,498.14, while the Nifty 50 declined 365 points, or 1.41%, to close at 25,454.35. Broader markets mirrored the weakness, with the Nifty Midcap and Smallcap indices falling 1.6% and 1.3%, respectively.

The sharp correction wiped out nearly ₹6.7 lakh crore in investor wealth, as the total market capitalisation of BSE-listed companies slipped to ₹465.06 lakh crore.

Market volatility spiked, with India VIX rising 10.12% to 13.46 during the Sensex F&O expiry session. Analysts said the correction appeared to be driven more by volatility-led profit booking and global risk repricing than by any structural reversal in the broader trend.

Here are five factors behind the ₹6.7 lakh crore rout:

Broad-based sell-off in heavyweights

All 30 constituents of the Sensex ended in the red. Reliance Industries fell 2.11%, while aviation major IndiGo emerged as the top loser, plunging 3.23%.

Private banking majors including ICICI Bank (-1.27%), HDFC Bank (-0.93%), and Axis Bank (-1.53%) were notable losers.

Auto stocks witnessed sharp declines, with Mahindra & Mahindra tumbling 2.97% and Maruti Suzuki slipping 1.73%. FMCG and consumer names also traded lower, as Hindustan Unilever fell 1.90% and ITC Limited shed 2.03%.

Infrastructure and capital goods stocks such as Larsen & Toubro (-1.06%) and UltraTech Cement (-2.90%) remained under pressure.

In the IT pack, however, losses were relatively contained. Infosys declined 0.29%, Tata Consultancy Services fell 0.53%, and HCL Technologies dropped 1.12%, indicating relative resilience.

Sectorally, all indices ended in negative territory, with auto, capital goods, realty, power, consumer durables and media stocks among the worst hit, each declining around 2%.

Escalating U.S.–Iran tensions

Vinod Nair, Head of Research at Geojit Investments Limited, said rising geopolitical tensions between the U.S. and Iran unsettled global sentiment, triggering a broad-based sell-off.

“Brent crude surged to its YTD high, exacerbating inflationary concerns and heightening volatility amid fears of potential bottlenecks in the Strait of Hormuz. At the same time, uncertainty surrounding the U.S. Fed’s rate-cut trajectory and continued weakness in the INR weighed on the domestic market,” he said.

Ponmudi R, CEO of Enrich Money, added that uncertainty over U.S.–Iran negotiations amplified fears of military escalation and a wider Middle East conflict, weighing heavily on investor sentiment.

Spike in crude prices

Ajit Mishra, SVP – Research at Religare Broking, said sentiment deteriorated primarily due to a sharp surge in crude oil prices amid lingering geopolitical tensions.

Brent crude rose as much as 1.3% to its year-to-date high of $71.13 per barrel. Mixed global developments and concerns around upcoming macroeconomic data also dampened investor confidence. The absence of fresh positive domestic triggers kept participants cautious, he added.

Weakness in the rupee

The Indian rupee weakened against the U.S. dollar on Thursday, slipping to a two-week low of around ₹91.18. The currency traded in a range of ₹90.76–₹91.18, declining as much as 0.40% from the previous close of ₹90.77.

Analysts attributed the weakness to broad-based dollar strength following robust U.S. economic data, along with sustained hedging demand from domestic importers. Strong U.S. indicators prompted markets to scale back expectations of aggressive Federal Reserve rate cuts, keeping the greenback firm against emerging market currencies.

Technical breakdown and rising volatility

Ajit Mishra of Religare Broking said the latest decline erased gains from the previous three sessions, weakening the short-term structure.

“A decisive break below the 25,400 level could further dent sentiment and drag the index toward the 25,100 gap area,” he noted, adding that profit booking in banking stocks significantly impacted overall market mood.

Sudeep Shah, Head – Technical and Derivatives Research at SBI Securities, said the intraday slide resulted in the formation of a large bearish candle on the daily chart. The Nifty also decisively slipped below its 20-day, 50-day and 100-day EMA levels — signalling strengthening bearish momentum in the near term.

The spike in India VIX, which surged over 10%, reflected heightened nervousness among traders and suggested the possibility of wider market swings in the sessions ahead.

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