Friday fright: Sensex dives 1.9%; Nifty down 15% since Sept peak

On Friday, domestic stock markets continued their downward spiral, tracking weak Asian stocks amid continued concerns over tariff threats from the US President Donald Trump and also ahead of the release of India’s domestic gross domestic data (GDP) for FY2024-25 and October-December 2024 quarter. The general slowdown in the economy has also impacted the sentiment.

Asian markets were the most affected by tariff news on Friday which led to a sharp correction in all the major Asian indices. The Japanese Nikkei index fell 3 per cent, followed by the Korean Kospi at 3.39 per cent and Hong Kong’s Hang Seng at 3.28 per cent. But between November 1, 2024, and February 27, 2025, the Indian indices Sensex (-8 per cent) and Nifty (-9 per cent) registered the biggest fall of over 8 per cent, Nikkei fell 2 per cent, Kospi less than 1 per cent. All other indices were up: Hang Seng (12 per cent) Dow Jones (up 3  per cent), Euro Stoxx 50 (up 12 per cent) and Shanghai Composite (up 1 per cent).

Crude oil prices witnessed gains overnight as tariff concerns led to a sharp rally from lower levels. Gold has been gaining ground in the last five months.

The BSE’s Sensex crashed 1,414.33 points, or 1.9 per cent, to close at 73,198.1 on Friday. In just one day, investors lost Rs 9.08 lakh crore in market capitalisation.

The broader Nifty 50 tanked 1.86 per cent or 420.35 points, to end at 22,124.7. Mid and small cap stocks continued to remain under heavy selling pressure. The BSE Smallcap index plunged by 2.33 per cent and BSE Midcap index fell 2.16 per cent. All major sectoral indices ended in negative territory on Friday. Nifty Auto declined 3.92 per cent and Nifty IT fell 4.18 per cent.

While the calendar year 2024 saw the entry of retail investors in large numbers, they are now sitting on huge losses — whether its direct purchase or through mutual funds. Net asset values of fund houses have fallen sharply.

Mutual fund and insurance companies, who are big investors in the market, have seen their wealth eroding.  The equity mutual fund sector witnessed a significant decline in assets under management (AUM) in January, as a broad fall in the domestic stock market led to mark-to-market losses. The net AUM of equity mutual funds plummeted by Rs 1.1 lakh crore, or 3.26 per cent, on a month-on-month basis, to Rs 29.46 lakh crore as of end-January 2025, highlighting the vulnerability of mutual fund investments to market volatility.

With small-cap stocks coming under pressure, net AUM of small-cap funds fell by Rs 23,665 crore, or 7.19 per cent, to Rs 3.05 lakh crore as on January 31, 2025, compared to Rs 3.29 lakh crore on December 31, 2024.

Mid-cap funds also witnessed their assets shrinking by Rs 26,600 crore, or 6.65 per cent, to Rs 3.73 lakh crore as of January 31, 2025, compared to Rs 3.99 lakh crore as at December 31, 2024, according to latest data from the Association of Mutual Funds in India (AMFI).

“Stock markets dislike uncertainty, and uncertainty has been on the rise ever since Trump was elected the US president. The spate of tariff announcements by Trump has been impacting markets and the latest announcement of additional 10 per cent tariff on China is a confirmation of the market view that Trump will use the initial months of his presidency to threaten countries with tariffs and then negotiate for a settlement favourable to the US,” said an analyst with a leading brokerage.

It needs to be seen how China will respond to the latest round of tariffs. Even now the markets have not discounted a full-blown trade war between the US and China. It is likely to be avoided. “However, the uncertainty element has increased as reflected in the sharp spike in CBOE volatility index to 21.13,” he said.

“Domestic investors went into a panic mode and offloaded equities at will, as weak global market cues sparked a major selloff causing benchmark indices to crash nearly 2 per cent. There is a lot of discomfort amongst the investors over Trump announcing imposition of import levies on several nations,” said Prashanth Tapse, Senior VP (Research), Mehta Equities Ltd.

Also, concerns over slowing economic growth, earnings coming in below expectations, and lingering foreign investor selling have been driving bearish trends at regular intervals, he said.

Among other external factors, a concern is inflation in Japan. The recent data showed that core consumer prices in Tokyo rose 2.2 per cent in February from a year earlier. Though core inflation slowed for the first time in four months, it remained well above the Bank of Japan’s 2 per cent target. This high inflation number also weighed on investors’ sentiments as it would mean continuation of a tight monetary policy, analysts said. The BoJ could hike rates further, which could impact the Yen carry trade segment.