Stock Market Crash: Crores of rupees lost in 2 days; THESE factors led to fiasco

New Delhi: Indian stock markets witnessed a sell-off for the second consecutive day on Tuesday, driven by a "sell-and-run" mentality. Weakness in global markets and weaker-than-expected third-quarter results, coupled with the escalating threat of a trade war, fueled investor concerns. 

How did the Sensex fare on Tuesday?

The Sensex plummeted by over 1,200 points, hitting a low of 82,010.58, while the Nifty 50 also slipped below 25,200. At the close of trading, the Sensex ended 1,066 points, or 1.28%, lower at 82,180.47, while the Nifty 50 fell by 353 points, or 1.38%, closing at 25,232.50. Mid-cap and small-cap stocks also witnessed sharp declines, with the BSE Midcap index falling by 2.52% and the Smallcap index by 2.74%. The India VIX (Volatility Index) surged by nearly 8%, indicating the likelihood of further market volatility in the near future.

Which sector was the worst hit by the stock market crash?

Sector-wise, the real estate sector was the worst hit, with the Nifty Realty index falling by over 5%. The consumer durables sector declined by 3%, while the auto, IT, metal, and pharma sectors each fell by 2%. The Nifty Bank index was down 0.81%, and the Financial Services index fell by 1.16%. Over the past two days, the Sensex has fallen by 1,390 points, or 1.7%, and the Nifty 50 by 1.8%. This sell-off resulted in a loss of approximately ₹12 lakh crore for investors. The total market capitalization of companies listed on the BSE fell from approximately ₹468 lakh crore on Friday to around ₹456 lakh crore. 

What are the reasons for the stock market crash?

There are five major reasons behind this decline in the Indian stock market. 

Threat of a Trade War: US President Donald Trump's attempt to buy Greenland and his threat to impose potential tariffs on European countries have heightened investor concerns. European countries have also warned of retaliatory measures. According to a Bloomberg report, "If Trump follows through on his threat to impose a 10% levy on European goods, the European Union could impose tariffs of $108 billion on US goods." V.K. Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, says, "This market volatility is likely to continue until there is clarity on the US-Europe Greenland tariff issue. Since both sides have hardened their positions, the uncertainty will persist for some time."

Mixed Q3 Results: The third-quarter results have been mixed due to the one-time impact of new labor laws. Experts believe the results have been broadly stable. However, the lack of positive surprises has further dampened market sentiment, which was already affected by geopolitical concerns. Vijayakumar said, "The initial third-quarter results do not indicate a recovery in earnings growth. This could change when the results of auto companies start coming in, as this sector has performed well in the third quarter, and it is a relief that the growth momentum in this sector is continuing."

Heavy Selling by FIIs: Foreign Institutional Investors (FIIs) have been consistently selling Indian equities. So far this month, they have sold Indian shares worth over ₹29,000 crore in the cash segment. Uncertainty regarding the India-US trade deal, the weakening of the rupee against the dollar, and the mismatch between earnings and valuations are the main reasons for this.

Flow of Money into Gold and Silver: Rising geopolitical and geo-economic risks have diminished the prospects of risky equities. This is attracting investors towards safe-haven assets. The record-breaking rally in gold and silver is prompting investors to book profits in equities and invest in precious metals, which are expected to rise further amid geopolitical uncertainties, trade wars, and expectations of interest rate cuts by the US Federal Reserve.

Focus on Union Budget 2026: Experts say market sentiment is cautious ahead of the budget, which is due on February 1. The government is expected to announce measures to boost economic growth, job creation, and consumer demand. However, the government is also expected to strike a balance between growth and fiscal consolidation. But, an overemphasis on fiscal consolidation could lead to cuts in government capital expenditure. Such speculation is making investors cautious.