Stock market crash: Tracking a weak sentiment in world equities, the Indian stock market witnessed a heavy sell-off on Friday. The Nifty 50 opened gap-down at 25,571 and finished 336 points lower at 25,471. The BSE Sensex also opened sharply lower at 82,902 and ended 1,048 points lower at 82,626.
The Bank Nifty, too, traded in the red, declining over 550 points to a low of 60,073.
During this stock market crash, the market capitalisation of the BSE-listed stock fell from ₹472 lakh crore to around ₹465.50 lakh crore, recording an intraday market cap loss of ₹6.50 lakh crore.
According to stock market experts, the primary reason for the weakness in the Indian stock market today is AI-driven sell-off in the IT stocks. IT stocks account for around 10% of the Indian market and hold a significant weightage in the benchmark indices.
Jittery sentiment ahead of US CPI data, anticipated profit-booking after the sentimental rally due to the India-US trade deal, and volatility in the Indian Rupee against the US Dollar (USD) also dragged the indices lower.
Why is the Indian stock market down today?
Highlighting the major reasons that caused the Indian stock market crash on Friday, Avinash Gorakshkar, a SEBI-registered fundamental equity analyst, said, “The primary reason for the weakness in the Indian stock market today is the US stock market crash. However, the market is under pressure ahead of today’s US CPI data. As the US economy faces severe challenges these days, Indian stock investors don’t want to take any chances in the last session of this week.”
Gorakshkar said that profit-booking after the sentimental rise in Indian stocks post-announcement of the India-US trade deal, weakness in the Indian Rupee against the US Dollar, and expectations of tepid quarterly numbers are among the other reasons for the stock market crash today.
Stock market crash: Top 5 factors
Here are the key factors behind the stock market crash today:
1] Sell-off in IT stocks: The Indian IT stocks cracked up to 7.5%, extending their selloff to the third day in a row, tracking the overnight selloff in US tech, amid fears that AI-led disruption could weigh on the labour-intensive IT pack, impacting deal wins and future growth trajectory.
IT bellwethers Infosys and TCS were among the top index drags in the morning session on the Sensex.
“IT stocks constitute around 10% weight in the Nifty 50 index. Selling pressure in the Indian IT stocks on renewed AI threat has dragged down the key benchmark indices during the Friday session,” said Gorakshkar.
Advising investors to take advantage of this AI-fueled selling in IT stocks, Dr VK Vijayakumar of Geojit Investment, said that the correction in AI stocks is a positive, because last year’s global rally was primarily an AI trade in which India, an AI laggard, couldn’t participate. So the unwinding of the AI trade, if it persists, is a positive from the Indian perspective.
2] US CPI data: Investors are also keenly awaiting the US CPI data due to be released later tonight, as it could shed light on the US Federal Reserve’s rate cut trajectory. Stronger-than-expected US jobs data in January has also dented expectations of a near-term rate cut by the Federal Reserve, which does not bode well for emerging markets like India.
According to Anuj Gupta, a Sebi-registered analyst, the market is not expecting any optimistic outcome from the US CPI data as the US economy is under severe challenge these days, especially the de-dollarisation threat by countries like Russia, China, Brazil, etc.
The US CPI data will be released after Indian markets close on Friday. With the next two days being a weekly holiday, domestic equities will react to the numbers only on Monday. “Indian stock investors don’t want to take any chances ahead of the US CPI data by holding positions into the weekend,” Gupta said.
3] Profit-booking after India-US trade deal: The Indian equity indices witnessed strong buying in the first week of February, buoyed by the much-awaited India-US trade deal. Sensex and Nifty had risen over 1.5% for the week ended February 6. Analysts believe some profit-taking following the sharp run-up was expected.
“Profit-booking in the Indian stock market was widely expected after the recent rally in the Indian stock market, post the announcement of the India-US trade deal. So, some credit for the weakness in the Indian stock market today should be given to this sentimental rise in the Indian stock market after the announcement of the India-US trade deal,” said Gupta.
He added that it would take about 6-9 months for the India-US trade deal to take effect on the ground. “As it would take time for the India-US trade deal to reflect on the ground, and upcoming earnings seasons are expected to remain tepid, investors have booked gains,” according to the expert.
4] Reality behind the India-US trade deal: Highlighting an unusual impact of the trade deal, Gorakshkar said the Indian government faces a challenge as it navigates trade relations with the US and China.
“There is a practical threat in the India-US trade deal that no one is talking about. After the India-US trade deal, around one-third of India’s exports were concentrated in two countries — the US and China. So, it would be a practical challenge for the Indian government to strike a balance with these two countries, which have announced a trade war against one another,” said Avinash Gorakshkar.
5] Volatility in Indian Rupee: The trade deal has enthused investor sentiment and reversed FII outflows, but the rupee volatility remains a threat, according to experts.
“After the announcement of the India-US trade deal and the India-EU trade deal, FIIs have slowly but steadily started showcasing faith in the Indian stock market. On Thursday, both FIIs and DIIs ended up on the net buyer’s side. However, the volatility in the Indian Rupee may spoil the FIIs’ sentiments, as the Indian Rupee was around 0.10% down during the early morning deals on Friday,” Avinash Gorakshkar added.
What’s next after this stock market crash?
Unveiling the market strategy amid bloodbath on Dalal Street, Santosh Meena, Head of Research at Swastika Investmart, said, “The medium- to long-term outlook for Indian equities remains structurally bullish, supported by strong domestic macros, earnings resilience, and improving fundamentals. However, with global cues turning uncertain, investors should adopt a measured and phased approach.”
The Swastika Investmart expert advised investors to avoid aggressive lump-sum buying at current levels. He suggested maintaining some cash to deploy in case of a deeper correction driven by global volatility.
Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.