Stock market crash: Today, Monday, February 3, 2025, the Indian stock market fell sharply, with the Sensex falling over 700 points in early trading hours and the Nifty 50 dropping below 23,250. This sudden drop came despite recent tax relief announcements in the Union Budget aimed at boosting consumer spending. This led to panic among investors as the market capitalization declined by ₹5 lakh crore in hours. In this article, we will discuss the five important reasons behind the decline today, explaining how global tensions, domestic policy changes, and foreign investor behavior combined to fuel panic. So let’s understand in detail the reasons behind the decline.
1. Global Markets React to Trump’s Trade Tariffs
Indian stock markets fell sharply today on weak global cues, especially US President Donald Trump’s aggressive trade policies. Over the weekend, Trump announced 25% tariffs on Canada and Mexico and 10% on Chinese imports, rekindling fears of a global trade war. Asian markets, including Japan’s Nikkei and South Korea’s Kospi, fell 3%, creating a negative environment for Indian equities.
Experts like VK Vijayakumar, chief investment strategist at Geojit Financial Services, said Trump’s tariffs dampened the positive sentiment from India’s Union Budget. “These tariffs have added to the uncertainty, which has weighed on markets, while domestic reforms are aimed at boosting growth,” he said. Investors are concerned that retaliatory measures from affected countries could disrupt global supply chains and slow economic recovery.
2. Rising Dollar and Record-Low Rupee Worsen Sell-Offs
The Indian rupee hit an all-time low of 87 against the US dollar on Monday, while the US dollar index crossed 109.6, its highest level in months. A strong dollar usually prompts foreign investors to withdraw funds from emerging markets like India, and this time was no exception. Foreign institutional investors (FIIs) accelerated their selling by withdrawing ₹2.7 lakh crore from Indian equities between October 2024 and February 2025.
This exodus was caused by India’s stretched valuations, sluggish corporate earnings and rising US bond yields, which made safe assets like US Treasuries more attractive. Apart from this, the depreciation of the Indian rupee also raised concerns about higher import costs, especially oil, which could increase inflation and reduce corporate profit margins. So let’s now know why RBI policy uncertainty is increasing investors’ concerns.
3. RBI Policy Uncertainty Adds to Investor Anxiety
Let us tell you that after the Union Budget, investors have now turned their attention to the meeting of the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI). RBI’s stance on interest rates and inflation management has become important amid a slowdown in global growth. While the government’s income tax cuts were aimed at boosting spending, markets expected the RBI to complement these efforts by cutting rates by 25 basis points to reduce borrowing costs.
However, analysts warned that the RBI could adopt a cautious stance due to persistent inflation risks. “The central bank is walking in a difficult position between supporting growth and controlling price rise,” said a senior economist at a Mumbai-based brokerage. This uncertainty has kept investors on their toes, contributing to the day’s volatility.
4. Foreign Investors Continue Massive Sell-Offs
Recently, a report came out that FPIs withdrew from the Indian market and sold ₹44,396 crore, while there has been a continuous sell-off by foreign institutional investors (FIIs) since October 2024. By February 2025, FIIs had sold Indian shares worth ₹2.7 lakh crore, due to rising interest rates in the US and India’s premium valuation compared to other emerging markets.
The sell-off was most affected by mid-and small-cap stocks, with the BSE Midcap and Smallcap indices falling more than 1%. Retail investors, who had invested in these segments during the 2023-24 rally, suffered huge losses. A fund manager of a leading mutual fund commented, “The flight of foreign capital has exposed the weakness of India’s liquidity-driven market, so let us now know how the optimism towards the budget faded amid global adversities.
5. Budget Optimism Fades Amid Global Headwinds
More recently, Finance Minister Nirmala Sitharaman’s Budget 2025 promised tax relief for the middle class and spending on infrastructure, but these measures failed to mitigate global risks. Investors realized that domestic reforms alone cannot protect the market from external shocks like a trade war or a strong dollar.
For example, sectors like IT and pharmaceuticals – which are heavily dependent on exports – faced a dual threat from a weak rupee (higher import costs) and potential tariff barriers in key markets like the US.
Read this also: Budget 2025 Live Analysis: Market Volatility, Tax Reforms, and Sector-Specific Growth Opportunities Unveiled
Key Data: Market Performance on February 3, 2025
| Index | Previous Close | Day’s Low | Loss |
|---|---|---|---|
| Sensex | 77,505.96 | 76,791.09 | -714 points (-0.9%) |
| Nifty 50 | 23,482.15 | 23,246.55 | -235 points (-1%) |
| BSE Market Capitalization | ₹424 lakh crore | ₹419 lakh crore | ₹5 lakh crore wiped |
What Should Investors Do Now?
Market experts advise against panic selling but caution is advised. It is important to diversify the portfolio across sectors, increase exposure to defensive stocks (e.g., FMCG, utilities), and stay updated on RBI policy decisions. Also, long-term investors can look at this correction as a buying opportunity when global tensions ease.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investing in the stock market is risky. Consult a certified expert before making a decision. The accuracy of data or results is not guaranteed. The author/publisher will not be liable for any losses.
