Sensex and Nifty fall on Black Monday amid Trump tariffs and weakening rupee - February 2025 market update

Sensex and Nifty Plunge on Black Monday Amid Global Concerns

Posted on February 3, 2025 by Niftynews

A dramatic selloff in India’s equity markets as both Sensex and Nifty experienced significant drops. The BSE Sensex tumbled over 700 points, and the NSE Nifty fell below the crucial 23,300 mark. This sharp decline wiped off over ₹5 lakh crore in market value, with global and domestic factors weighing heavily on investor sentiment.

Why Did Sensex and Nifty Fall?

1. Trump’s Tariffs Spark Global Trade Fears

A key catalyst for the decline in Sensex and Nifty was the fresh round of tariffs imposed by U.S. President Donald Trump. Over the weekend, Trump announced 25% tariffs on imports from Canada and Mexico and a 10% duty on goods from China. This move has raised concerns about an escalating trade war, with Canada and Mexico already pledging countermeasures. China has also indicated it will challenge these tariffs at the World Trade Organization (WTO).

This uncertainty around trade and the potential for retaliatory tariffs is keeping investors on edge. The fear is that a full-blown trade war could disrupt global supply chains and negatively affect market performance, putting downward pressure on both Sensex and Nifty.

2. Disappointing Union Budget Infrastructure Spending

The Union Budget presented a few days ago also failed to excite the market. The modest increase in capital expenditure for infrastructure projects was not enough to boost investor confidence. As a result, stocks in the infrastructure sector, such as Larsen & Toubro (L&T) and UltraTech Cement, saw heavy selling. The Nifty infrastructure index dropped by 2.3%, reflecting the disappointment among market participants.

3. Weakening Rupee Adds Pressure

The Indian rupee hit a record low of 87 per U.S. dollar, its weakest level in recent history. This sharp depreciation came in the wake of Trump’s tariff announcements, which have contributed to a stronger U.S. dollar. The weaker rupee raises concerns about rising inflation and potentially lower foreign investments, which further pressured Sensex and Nifty on February 3.

4. Rise in Dollar Index Fuels FII Selling

In addition to the tariff-induced uncertainty, the surge in the U.S. dollar index added to the pressure on the Indian stock market. As the dollar strengthened, foreign institutional investors (FIIs) increased their selling activity, further weighing down on Sensex and Nifty. The stronger dollar is seen as a safe-haven asset during times of market instability, leading to more outflows from emerging markets like India.

5. Mixed Q3 Earnings Lead to Caution

The earnings reports from several companies for Q3 have been a mixed bag, with many firms struggling with rising costs and reduced margins. Despite some positive earnings reports, market participants remain cautious, especially given the uncertain global economic environment. This has led to a more risk-averse sentiment, putting downward pressure on Sensex and Nifty.

Technical Analysis: Key Levels to Watch for Nifty

From a technical standpoint, Nifty tested its 200-day exponential moving average (DEMA) resistance during the final session. Experts suggest that if Nifty manages to break above the 23,650 level, it could see a recovery toward the 23,900–24,200 zone. On the downside, the support level at 23,000–23,300 will be critical for maintaining stability. Traders are advised to remain cautious and not react impulsively to short-term movements in Sensex and Nifty.

Investor Sentiment and Outlook: What’s Next for Sensex and Nifty?

While the sharp decline in Sensex and Nifty might feel unsettling, it’s important for investors to look at the broader picture. Global trade tensions and a weak rupee are short-term factors, and the markets could recover once these uncertainties ease. Furthermore, the RBI MPC meeting on February 7 will be a key event to watch for signs of monetary support, which could help stabilize markets.

As investors await further clarity on global economic conditions, corporate earnings, and the RBI’s monetary policy, it’s crucial to stay focused on long-term growth opportunities. Given the current volatility, maintaining a balanced approach is the best strategy for navigating these uncertain times.

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