The BSE Sensex dropped 873 points, or 1.06%, to close at 81,186, while the NSE Nifty declined 261 points, or 1.05%, to end at 24,683.
Across sectors, Nifty Bank, Financial Services, Pharma, and FMCG slipped 1–1.5%, while Nifty Auto fell 2.2%. In the broader market, the Nifty Midcap100 lost 1.6%, and the Nifty Smallcap100 declined 0.94%.
The total market capitalisation of BSE-listed companies fell by Rs 5.13 lakh crore to Rs 438.54 lakh crore.
Here are key reasons behind the fall:
1. Moody’s Downgrades US Government Rating
Global sentiment turned cautious after Moody’s downgraded the US government’s credit rating from AAA to Aa1 over rising debt concerns. The move sent bond yields higher, with the 30-year Treasury yield touching 5.03%, its highest since November 2023. The rise in yields has raised fears of reduced liquidity in global markets, which often impacts emerging markets like India.
2. FIIs Turn Net Sellers
Foreign Institutional Investors (FIIs) have turned cautious, pulling out Rs 526 crore on May 19, while Domestic Institutional Investors (DIIs) were also net sellers to the tune of Rs 238 crore. This marked the first instance in over a month where both FIIs and DIIs offloaded shares simultaneously.Year-to-date, FIIs have been net sellers of Rs 1.09 lakh crore worth of Indian equities, while DIIs have purchased a net Rs 2.30 lakh crore, indicating a narrowing cushion from domestic flows.
3. Profit Booking After Recent Rally
The recent rally in Indian markets — which saw the Sensex and Nifty surge nearly 4% following the Operation Sindoor ceasefire — led to stretched valuations. In the past nine sessions, the market cap of BSE-listed firms jumped by Rs 27.3 lakh crore. Tuesday’s decline is partly attributed to investors booking profits at elevated levels.
“With the lack of major positive triggers and prevailing uncertainty over U.S. fiscal stability, investors opted for profit-booking and adopted a cautious stance. Selling pressure was widespread as participants awaited more clarity on the India-U.S. trade agreement. Given the current premium valuations and delays in the trade deal, we foresee a phase of short-term consolidation, which may lead FIIs to scale back their positions in the domestic market,” said Vinod Nair, Head of Research, Geojit Investments Limited.
4) Pressure from Heavyweight Stocks
Selling pressure in large-cap names dragged the indices lower. HDFC Bank, Reliance Industries, ICICI Bank, M&M, Maruti, and Bajaj Finance were among the top drags. Notably, shares of Eternal (formerly Zomato) fell over 4% amid concerns over a potential $1.3 billion outflow following the company’s move to become an Indian Owned and Controlled Company (IOCC).
According to Jefferies, Eternal may face MSCI exclusion due to foreign ownership nearing the regulatory limit of 46.5%. The stock currently has 44.8% foreign holding as of March, but analysts believe it may have risen closer to the threshold.
5) Nifty Looked Overbought on Charts
Analysts said Nifty appeared overbought in the short term, as Monday’s bearish candle and inside bar pattern reflected market indecision. On Tuesday, the index failed to hold above the 25,000 mark and broke the key support zone of 24,900–24,800, signaling weak momentum and prompting caution among traders.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
