Why stock market fell today: Sensex settles 501 pts lower, Nifty below 25,000; 5 reasons behind the drop

Indian benchmark indices ended in the red on Friday, weighed down by selling in financial stocks, weak earnings, and cautious global sentiment.

The 30-share BSE Sensex dropped 501 points, or 0.61%, to close at 81,757, while the NSE Nifty fell 143 points, or 0.57%, to end at 24,968.

The total market capitalisation of BSE-listed companies declined by Rs 2.61 lakh crore to Rs 458.26 lakh crore.

All major sectors, except metals, ended in the red. Financial stocks led the decline, with Axis Bank, Shriram Finance, and Kotak Mahindra Bank among the top losers. The Nifty Private Bank index slipped 1.46%, while the PSU Bank index dropped 0.66%. Auto, FMCG, Consumer Durables, and Pharma indices also closed lower.

The broader market was weak as well, with the Nifty Midcap100 falling 0.7% and the Smallcap100 shedding 0.8%.

Here are five key reasons behind the fall:

1. FIIs Turn Negative in July

Foreign institutional investors (FIIs), who had supported the Indian market with strong inflows in May and June, have turned net sellers so far in July. This reversal in trend reflects growing caution amid global uncertainties, elevated valuations, and a shift in risk sentiment.

In May, FPIs were net buyers to the tune of Rs 19,860 crore, followed by inflows of Rs 14,590 crore in June. However, in the first half of July, they have pulled out Rs 2,660 crore from Indian equities, raising concerns about sustained market strength at current levels.

"In July, so far, India has been underperforming most markets, with a dip of 1.6% in Nifty. A significant contributor to the decline is the selling by FIIs. There is a clear pattern in FII activity this year so far. They were sellers in the first three months. For the next three months, they turned buyers. And in the seventh month the trends so far indicate further selling unless some positive news reverses the downtrend in the market," said Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited.

"Along with selling in the cash market, FIIs have been increasing short positions in the derivatives market too, which reflects a bearish outlook. Elevated valuations in India and cheaper valuations in other markets will continue to influence FII activity," Vijayakumar added.

2. Axis Bank's Earnings Miss Spooks Financial Sector

A surprise drop in Axis Bank’s quarterly profit due to higher provisions triggered sharp selling in financial stocks. Axis Bank shares fell 5.2%, making it the biggest laggard on the Nifty50.

The disappointment spread across the sector, with HDFC Bank, Kotak Mahindra Bank, and SBI also falling. Together, these four lenders contributed around 391 points to the Sensex’s overall drop.

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3. Citi Downgrades India to ‘Neutral’

Citi’s downgrade of Indian equities from ‘overweight’ to ‘neutral’ also dampened investor sentiment.

“India remains the most expensive market, trading at 23x forward earnings, above peers and its historical average,” Citi said. It cited stretched valuations and a moderation in earnings growth expectations as key reasons for the downgrade.

While Citi remains positive on India's macro outlook, it prefers selective sectors like banks, NBFCs, healthcare, and telecoms, while staying cautious on IT, metals, and consumer staples.

4. Uncertainty Over US Fed’s Next Move

Global sentiment also turned cautious after conflicting signals from US Federal Reserve officials. While Governor Christopher Waller said he expects a rate cut later this year, most officials have pushed back on the idea of an imminent move.

Markets now see almost no chance of a rate cut in the July 30 meeting, and only a 62% probability in September — adding to the risk-off mood.

5. Rising Oil Prices

Crude oil prices rose sharply following drone attacks in northern Iraq that shut down half of Kurdistan’s oil production.

Brent crude traded at $70.15 per barrel, and WTI at $68.27. This spike in oil prices has renewed concerns over input cost pressures, especially for oil-importing countries like India.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)