The BSE Sensex shed 585.67 points, or 0.72%, to close at 80,599.91, while the NSE Nifty slipped 203 points, or 0.82%, to settle at 24,565.35.
Here are six key factors that drove the market downturn:
1) U.S. tariffs on Indian exports
Investor sentiment soured after U.S. President Donald Trump signed an executive order imposing a steeper-than-expected 25% tariff on Indian goods. The order affects nearly 70 countries, although India was spared from further penalties over its Russian defence and energy deals. Still, the protectionist move has heightened uncertainty around a possible US-India trade agreement.”The Indian equity market extended its decline for a second day, pressured by renewed tariff threats and punitive duties that could undermine India’s global trade competitiveness,” said Vinod Nair, Head of Research, Geojit Investments.
2) Persistent FII outflows
Foreign Institutional Investors (FIIs) have been consistent net sellers, offloading shares worth Rs 5,588.91 crore on Thursday alone. Over the last nine sessions, cumulative FII selling has crossed Rs 27,000 crore, triggering widespread risk aversion in domestic markets.Sentiment has been further dampened by disappointing Q1 earnings and the growing dominance of short positions. FIIs have built record bearish bets, with short positions in index futures rising to 90%, the highest since March 2023. The long-to-short ratio dropped to a mere 0.11 at the start of the August series, while the Nifty rollover rate for July slipped to 75.71% from 79.53% in June.”Investor sentiment weakened further as FIIs now hold the second-highest net short position in derivatives, reflecting elevated caution,” said Vinod Nair, Head of Research, Geojit Investments.
3) Weak global market cues
Asian markets led a broad global selloff on Friday as investors digested the impact of fresh U.S. tariffs and awaited key US jobs data. Equities in India’s regional peers were under pressure, with the MSCI Asia-Pacific index (ex-Japan) falling 1.5%, bringing its weekly decline to around 2.7%.
Japan’s Nikkei slipped 0.6%, Chinese blue chips dropped 0.5%, and Hong Kong’s Hang Seng index lost over 1%. South Korea and Taiwan also traded lower after the U.S. announced steep tariffs, including 25% on Indian exports, 20% on Taiwan’s, 19% on Thailand’s, and 15% on South Korea’s.
The downbeat sentiment extended to European equities, with the Stoxx 600 falling 1% in early trade and headed for its worst week since April. Wall Street futures also pointed to a subdued start, weighing further on investor risk appetite globally.
4) Dollar strength intensifies pressure
The dollar index surged 2.5% during the week to climb above 100, marking a two-month high and its strongest weekly performance in nearly three years. The rally has exacerbated capital outflows from emerging markets, including India, and raised the cost of foreign debt.
“The sharp surge in the dollar index to 100 will nudge the FIIs to continue selling putting pressure on largecaps too. Investors can adopt a wait and watch strategy,” said Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Investments.
5) Pharma stocks under fire
Pharmaceutical shares came under pressure after the White House sent letters to 17 global drugmakers urging them to cut U.S. prescription prices to match international benchmarks. The letters also called for the adoption of a Most Favoured Nation (MFN) pricing model within 60 days, raising fears of increased regulatory scrutiny and margin compression.
The Nifty Pharma index fell 3.3% on Friday, extending its losing streak to a third session and closing 2.9% lower for the week. Sun Pharma was the biggest drag on the Nifty 50, slipping 4.5% after Investec downgraded the stock to “sell” from “buy.” Other notable laggards included Aurobindo Pharma, Cipla, Lupin and Gland Pharma.
6) Technicals point to further downside
From a technical perspective, the Nifty remains under pressure after failing to reclaim its 200-DMA on the hourly chart, despite a brief recovery on Thursday, said Rupak De, Senior Technical Analyst at LKP Securities, adding that the index also remained below the 50-EMA on the hourly timeframe throughout Friday’s session.
“On the daily chart, it has broken below the recent consolidation support at 24,600. Sentiment remains weak, with the potential for the correction to extend towards 24,400–24,450. A further decline is likely if it slips below 24,400,” De noted.
Ajit Mishra, SVP – Research at Religare Broking, said the Nifty is now approaching its next crucial support at 24,450, and a breach of this level could trigger a retest of the long-term moving average — the 200-day EMA — near 24,180. “On the upside, the 24,800–25,000 zone is expected to act as a strong hurdle. We maintain our cautious stance and continue to recommend a hedged approach with a negative bias until clear signs of reversal emerge,” he said.
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