Renewed US tariff threats, geopolitical risks and persistent FII outflows rattled Dalal Street, breaking key technical levels and raising volatility as investors await clarity ahead.
Introduction to the Market Downturn
The Indian equity market has experienced a dismal start to the new year, with intense selling pressure throughout the week. This has resulted in a significant decline in investor confidence, which had been hoped to stabilize after months of volatility. The Sensex plummeted by 600 points on Friday, culminating in a total decline of over 2,000 points across all five trading sessions of the week. This translates to a staggering loss of more than Rs 9 lakh crore in value terms for investors, marking one of the most unsettling starts to a calendar year in recent memory.
Trump Tariffs Weigh Heavily on Sentiment
The primary trigger behind the sustained selloff was the renewed tariff-related rhetoric from US President Donald Trump. The markets have remained under pressure since Trump signaled that tariffs on Indian goods could be raised due to India’s continued purchases of Russian crude oil. This situation was further exacerbated when the US hinted at imposing punitive 500% tariffs on countries importing Russian oil, rekindling fears of a major disruption to global trade flows. The India-US trade relationship has come sharply into focus, with negotiations on a bilateral trade agreement remaining unresolved despite six rounds of talks since March. The Trump administration has already imposed tariffs of up to 50% on Indian goods, among the highest levied on any country.
Foreign Investors Continue to Sell
Sustained foreign institutional investor outflows have added to the market’s weakness. On Thursday alone, foreign investors sold Indian equities worth Rs 3,367 crore, extending their selling streak to a fourth consecutive session after a brief pause earlier in the month. Persistent FII selling has amplified downside pressure, particularly in large-cap stocks, where foreign ownership is high. Defensive sectors offered limited support, and investors largely stayed on the sidelines, waiting for clarity on global trade policy and geopolitical developments.
Nifty Breaks Down, Volatility Rises
From a technical perspective, the damage was equally severe. The Nifty lost nearly 2.4% over the week, forming lower highs and lower lows — a classic bearish pattern. The index slipped below key short-term moving averages, with momentum indicators pointing to continued weakness. While mild buying emerged near 25,623 levels, the lack of strong volumes prevented any meaningful recovery. Immediate support lies around 25,600, with a stronger base near 25,500, while 26,000 now acts as a major resistance zone.
Market Expert Insights
Market experts, such as Ponmudi R, CEO of Enrich Money, and Vinod Nair, Head of Research at Geojit Investments, have weighed in on the situation. They note that the markets remain stuck in a consolidation phase due to weak global cues, rising bond yields, and persistent FII outflows. The uncertainty around US-India tariff negotiations and geopolitical tensions has intensified domestic risk-off sentiment, even as India’s GDP growth outlook and Q3 earnings remain supportive.
Big Event to Watch Tonight
Investors are now closely watching a crucial global event. The US Supreme Court is set to deliver a landmark ruling on the legality of sweeping tariffs imposed by Trump under the International Emergency Economic Powers Act. This verdict could have significant implications for the market, potentially sparking a sharp relief rally or deepening volatility.
What Should Investors Do Now?
Market experts advise caution rather than panic. While near-term sentiment remains fragile, several analysts believe the current fall is corrective rather than a complete trend reversal. Long-term investors are being advised to avoid aggressive buying, focus on high-quality stocks, and stagger investments gradually. Short-term traders, meanwhile, are advised to stay light, respect stop-loss levels, and brace for continued volatility until global clarity emerges. According to VK Vijayakumar, Chief Investment Strategist at Geojit Investments, there is a high probability of the verdict going against Trump, but the market reaction will depend on whether the tariffs are partially struck down or declared entirely illegal.
