7 reasons behind Rs 18,64,000 crore 5-day stock market selloff; what's ahead?

Sensex, Nifty: Broader market is under severe selling pressure, as US tariffs, resultant rise in dollar (and record low rupee) and US bond yields, weak quarterly earnings at home, rich valuations vis-a-vis fundamentals and fading hopes of long rate cut cycle are all making domestic equities unattractive.  

FPIs were already in sell mode -- Rs 88,139 crore outflows in 2025 so far, and there are fresh fears that the sharp correction in midcap and small cap pockets may impact SIP flows, making market further jittery. Technical charts have also turned bearish, following the breach of 21-day EMA on Nifty. 

All this has wiped Rs 18,63,747 crore off BSE market capitalisation (m-cap) in the past five sessions.   

"The mood is already sombre because of likely prospects of subdued government spending going ahead and dismal earnings show so far which has created uncertainty amongst the investors and prompted them to offload their equity holdings,” said Prashanth Tapse, Senior VP (Research) at Mehta Equities. 

On Tuesday, Sensex fell 1,018.20 points, or 1.32 per cent, to 76,293.60. Nifty stood at 23,071.80, 309.80 points, or 1.32 per cent. During the 5-day selloff, Sensex has lost 2,290.21 points while Nifty has dropped 667.45 points.

Vinod Nair, Head of Research at Geojit Financial Services said the ongoing uncertainty surrounding US trade policies and tariffs, coupled with domestic economic growth concerns and persistent selling by FIIs, is dampening market sentiment. 

"The mid- and small-cap stocks experienced significant declines due to demand concerns and higher valuations. Although the RBI’s intervention provided some recovery for the rupee from yesterday's record low, it remains under pressure and is likely to keep the market volatile in the near term," Nair said.

Stock investors are anticipating the PM’s visit to the US for any potential relief in trade uncertainty, while the US inflation data later today will also be a key focus.

"Volatility is likely until clarity emerges on Fed policy, India-US trade talks, and a domestic valuation reset. In this scenario, large caps remain safer bets, so ignore knee-jerk reactions and keep a long-term view,” said Karthick Jonagadla of Quantace Research.

On the technical side, the Nifty’s fall below 23,200 has derailed the recovery prospects, with a potential retest of 22,800 ahead, said Ajit Mishra of Religare Securities. 

"However, the bigger concern is managing positions in midcap and smallcap stocks, which are witnessing heavy selling and appear more vulnerable. Traders should adopt a cautious stance, prioritizing risk management in the current market environment," he said.