Widely read:
The Indian stock market has hit a rough patch in recent weeks. The BSE Sensex slid over 1,300 points as of 2 pm IST on Friday, February 28, 2025. The index has tumbled nearly 14 per cent from its all-time high, while the Nifty Midcap 150 and Smallcap 250 indices have slipped into bear territory, falling over 20 per cent from their peaks.
For investors accustomed to steady gains, this sharp downturn raises pressing questions: What's causing the sell-off, and how should long-term investors navigate these turbulent times? Let's take a closer look.
On a slippery slope
Tracking the tumble across indices
| Index | YTD | 1 week | 1 month | 3 months | 1 year |
|---|---|---|---|---|---|
| BSE Sensex | -5.9 | -2.9 | -4.2 | -7.8 | 1.6 |
| BSE Mid Cap | -17.2 | -5.9 | -9.3 | -16.5 | -1.5 |
| BSE Small Cap | -21.8 | -6.9 | -12.7 | -22.4 | -4.8 |
| BSE 100 | -7.9 | -3.6 | -5.2 | -9.6 | 1.1 |
| BSE 200 | -9.2 | -3.8 | -5.7 | -10.6 | 0.3 |
| BSE 500 | -10.7 | -4.2 | -6.4 | -12.2 | -0.8 |
|
Returns in % Data as of February 28, 2025 |
|||||
What's driving the market down?
Global tariff concerns
US President Donald Trump, in his latest move, advanced the timeline for the 25 per cent tariff on Canadian and Mexican imports from April 2 to March 4, 2025. He has also imposed an additional 10 per cent duty on Chinese goods and reiterated his commitment to enforcing a 25 per cent tariff on the European Union.
This has created widespread uncertainty across multiple sectors, undermining investor confidence and contributing to the sell-off.
Foreign investors pulling out
Foreign institutional investors (FIIs) have been offloading Indian equities at an alarming pace. According to NSDL data, FIIs have pulled out a net Rs 1,13,721 crore from Indian markets so far in 2025, shifting their focus to cheaper markets such as China, Brazil and South Korea. January alone saw FIIs selling Rs 45,000 crore worth of Indian stocks, exacerbating the downward pressure on indices.
Slowing growth, weak earnings
The earnings growth of India's leading companies has been underwhelming. In the October-December 2024 quarter, Nifty 50 companies reported just a 5 per cent earnings growth—marking the third consecutive quarter of single-digit gains.
Adding to the woes, India's GDP growth is projected to slow to 6.4 per cent in FY25, down from 7.2 per cent in the previous fiscal year. This sluggish economic outlook has dampened investor sentiment and fueled concerns over future earnings potential.
Economic stress signals
The government and the Reserve Bank of India (RBI) have implemented measures to support economic growth, including tax cuts and a 25 basis-point repo rate reduction to 6.25 per cent. However, these steps also signal that policymakers acknowledge economic stress, further adding to market jitters.
Rupee under pressure
The Indian rupee has weakened against the US dollar, breaching the Rs 87 per dollar mark for the first time. A weaker rupee makes imports costlier and raises the foreign debt burden for Indian companies, particularly impacting sectors like oil and gas, technology and manufacturing.
Moreover, a depreciating currency reduces the attractiveness of Indian assets for foreign investors, intensifying capital outflows.
What should investors do?
Volatility is part and parcel of the markets. History has shown that markets eventually recover, rewarding patient investors. While corrections can be unsettling, they also provide opportunities to accumulate quality stocks at attractive valuations. If your investment objectives remain unchanged, there's no need to panic.
Rather than reacting to short-term fluctuations, use this time to reassess and strengthen your investment strategy. A well-diversified portfolio—spread across equities, fixed income and other asset classes—can help you ride out the downturn with confidence.
Also read: Should you strike when the market is cold?
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