Sensex drops 500 points, Nifty 50 ends below 25k today. Why did the Indian stock market fall for 3rd consecutive week?

Indian stock market benchmarks—the Sensex and the Nifty 50—ended in the red on Friday, July 18, extending losses to the third consecutive week. The Nifty 50 slipped below the key support level of 25,000. Over the past three weeks, the Sensex has tumbled 2,300 points, or nearly 3 per cent, while the Nifty 50 has also declined by around 3 per cent.

On Friday, July 18, the Nifty 50 fell 143 points, or 0.57 per cent, to close at 24,968.40, while the Sensex dropped 502 points, or 0.61 per cent, to end at 81,757.73.

The mid and small-cap segments, which outperformed benchmarks over the last few sessions, also witnessed a sell-off on Friday; the BSE Midcap and Smallcap indices dropped 0.62 per cent and 0.64 per cent, respectively.

Investors lost nearly ₹3 lakh crore in a single session as the overall market capitalisation of BSE-listed firms dropped to ₹458 lakh crore from ₹461 lakh crore in the previous session.

Here are five key reasons behind the fall in the Indian stock market:

The early trends of Q1 results have dashed the hopes of a significant earnings revival this quarter. After weak earnings in FY25, experts expected healthy earnings growth and upbeat management commentary in Q1. However, Q1 results so far have been unimpressive, and management has been cautious amid global uncertainty, which is weighing on market sentiment.

"Global uncertainty and a muted start to the Q1 earnings season are weighing on investor sentiment, even though sustained liquidity inflows are helping to cushion the downside," said Ajit Mishra, SVP of research at Religare Broking.

There is no dearth of media reports about an imminent trade deal between the US and India. However, the wait for a final deal continues.

According to a Bloomberg report, India is seeking a more favourable tariff rate than Indonesia and Vietnam as it races to meet the August 1 deadline.

A lingering uncertainty on the tariff front is keeping investors cautious.

"A resolution or positive progress on tariff negotiations, especially with the US, could eliminate a major overhang and restore investor confidence," said Rahul Ghose, the founder and CEO of Octanom Tech and Hedged In.

The market's stretched valuation is another key factor behind the current downtrend. The current PE of the Nifty, at 22.6, is above its two-year average PE of 22.3.

With earnings revival still a ways off, at least until the second half of the current financial year, the market's stretched valuation is weighing on market sentiment.

Even though domestic investors support the market, heavy profit booking by foreign portfolio investors (FPIs) is restricting markets from sustaining their intermittent gains. FPIs have sold Indian equities worth ₹17,330 crore in the cash segment in July so far.

"A significant contributor to the decline is the selling by FIIs," said VK Vijayakumar, Chief Investment Strategist, Geojit Investments.

Vijayakumar noted there is a clear pattern in FII activity this year so far.

"They were sellers in the first three months. For the next three months, they turned buyers. And in the seventh month, the trends so far indicate further selling unless some positive news reverses the downtrend in the market," said Vijayakumar.

"Along with selling in the cash market, FIIs have been increasing short positions in the derivatives market too, which reflects a bearish outlook. Elevated valuations in India and cheaper valuations in other markets will continue to influence FII activity," Vijayakumar said.

Technical experts pointed out that 25,000 was key support for the Nifty 50, and a breach of this level on the downside would drag the index towards 24,900-24,850.

Shrikant Chouhan, the head of equity research at Kotak Securities, pointed out that the Nifty 50 formed a bearish candle on the daily chart and a lower top formation on the intraday chart, indicating a largely negative trend.

"We believe that as long as the market is trading below 25,255, the weak sentiment is likely to continue. On the downside, the 50-day SMA (simple moving average) at 25,000 would be the immediate support level. Below 25,000, a move towards 24,900-24,850 would increase the chances. On the upside, a successful breakout above 25,255 could move the market towards 25,350-25,425," said Chouhan.

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stories by Nishant Kumar

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