US Trade Policies and Tariff Hikes The Indian stock market has faced significant pressure due to US President Donald Trump’s decision to impose a uniform 25% tariff on steel and aluminium imports, escalating fears of a global trade war . This move triggered a sell-off in emerging markets, including India, with foreign institutional investors (FIIs) withdrawing $9.94 billion from Indian equities in 2025 alone . Sectors like auto, metals, and IT faced sharp declines, dragging the Nifty and Sensex down by ~3% over five sessions .
Global Recession Fears and Fed Policy Strong US jobs data and delayed Federal Reserve rate cuts have tightened global liquidity, increasing bond yields (10-year US Treasury at 4.495%) and strengthening the dollar (DXY index: 108.36). This has amplified capital outflows from India, weakening the rupee to historic lows (₹86.27/USD) and worsening import inflation .
Geopolitical Risks Middle East tensions and supply chain disruptions (e.g., US sanctions on Russia) pushed crude oil prices to a 15-week high, straining India’s fiscal health and inflation outlook .
Recent Market Crash Analysis (Feb 2025)
Magnitude of Losses: Over five sessions (Feb 7–11, 2025), Indian equity investors lost ₹16.97 lakh crore, with the BSE Sensex dropping 2.91% (2,290 points) and Nifty50 falling 3% .
Key Triggers:
FII Selling: Sustained FII withdrawals due to high valuations and US yield appeal .
Domestic Weakness: Disappointing Q3 corporate earnings (e.g., Eicher Motors’ 6.8% drop post-results) and overvalued mid-/small-caps (Nifty Midcap 100 down 6.4% from peak) .
Currency Pressures: RBI interventions stabilized the rupee temporarily, but volatility persists .
Global Tensions and Indian Stock Market Volatility: Analyzing Recent Crashes, NSE & BSE Trends, and Future Predictions for 2025
NSE & BSE: Future Market Predictions
Bullish Factors
Domestic Resilience:
Retail investors and SIP inflows (₹25,000 crore/month) continue to counterbalance FII outflows .
Strong GDP growth (6.4% FY25) and tax reforms (income tax relief up to ₹1.2 million) are boosting consumption .
Valuation Corrections:
Large caps (Nifty50 P/E: 22) are undervalued vs. midcaps (P/E: 43), offering buying opportunities .
Banking and auto sectors are attractively priced, with potential upside from RBI rate cuts .
Manufacturing and Reforms:
Production-Linked Incentive (PLI) schemes and digitization reforms are driving investments in high-tech exports and infrastructure .
Bearish Risks
Global Headwinds:
Prolonged US tariff policies and Fed rate delays could prolong FII outflows .
Energy price volatility (crude oil) threatens India’s import bill and inflation .
Sector-Specific Challenges:
IT and pharma face risks from US policy shifts .
Overleveraged mid-/small-caps may see further corrections .
Strategic Recommendations for Investors
Focus on Large Caps: Prioritize undervalued sectors like banking and auto .
Monitor Global Cues: Track Fed rate decisions, US inflation data, and geopolitical developments .
Diversify Portfolios: Balance equities with bonds and defensive sectors (e.g., healthcare, FMCG) to mitigate volatility .
Conclusion
While global tensions and FII outflows have triggered short-term corrections, India’s robust domestic growth, retail participation, and reforms position it for long-term resilience. Investors should adopt a “buy on dips” strategy in large caps and stay vigilant about external shocks. The Nifty and Sensex are expected to rebound in H2 2025, supported by earnings growth (projected 16% FY26) and policy stability.
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