Stock Market Plunge: What Triggered Sensex’s 1,400-Point Drop?

The Indian stock market witnessed a steep decline on Friday, February 28, 2025, as the benchmark indices—Sensex and Nifty50—tumbled due to multiple factors. The sell-off was driven by the impact of Trump’s new tariffs, persistent Foreign Institutional Investor (FII) outflows, and weak global cues. The Sensex plunged by 1,434 points (1.92%) to an intraday low of 73,179, while the Nifty50 fell by 437 points (1.93%) to touch 22,108.

Why Did the Markets Crash?

Several key factors contributed to the sharp decline in Indian equities:

1. Trump’s Tariffs and Global Trade Uncertainty

US President Donald Trump’s latest tariff announcement added to market jitters. On Thursday, he confirmed that his proposed tariffs on Mexico and Canada—delayed for a month—would go into effect on March 4. Additionally, China will face an extra 10% tariff starting the same day.

"Stock markets dislike uncertainty, and uncertainty has been on the rise ever since Trump was elected US president," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services. "The spate of tariff announcements by Trump has been impacting markets, and the latest announcement of an 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 favorable to the US."

Markets are closely watching how China reacts, as fears of a full-blown US-China trade war remain elevated.

2. Persistent FII Selling Pressure

Foreign Institutional Investors (FIIs) have been net sellers in the Indian market, offloading equities worth ₹1,13,721 crore so far in 2025. In January, they dumped ₹78,027 crore, followed by ₹35,694 crore in February. On February 27 alone, FIIs sold shares worth ₹556.56 crore.

In contrast, Domestic Institutional Investors (DIIs) have been absorbing some of the selling pressure, purchasing ₹1,727.11 crore worth of shares.

3. Weak Global Cues Drag Markets Lower

Global markets also showed signs of distress, further dampening investor sentiment.

• Asian Markets: The Nikkei fell 2.81%, while the Topix declined 1.87%. The ASX 200 and Kospi lost 1.03% and 2.74%, respectively. The CSI 300 traded 0.6% lower.
• US Markets: Wall Street ended in the red, with the S&P 500 slipping 1.59% to 5,861.57. The Nasdaq Composite dropped 2.78% to 18,544.42, dragged lower by an 8.5% fall in Nvidia. The Dow Jones lost 193.62 points (0.45%), closing at 43,239.50.
• Cryptocurrency Decline: Bitcoin also suffered losses, falling 1.79% to $82,811.12, marking a nearly 25% drop from its January high.

4. MSCI Rebalancing Sparks Fund Rotation

Ahead of MSCI’s February 2025 rebalancing, set to take effect after Friday’s session, passive inflows of around $1 billion were expected.

• Additions: Hyundai Motor India was added to the MSCI Global Standard Indexes, receiving the highest weight increase among Indian securities.
• Removals: Adani Green Energy was removed from the index, leading to significant weight decreases in stocks such as RIL, ICICI Bank, Infosys, HDFC Bank, M&M, L&T, Bharti Airtel, and Axis Bank.

5. Broad-Based Sell-Off Across Sectors

The market sell-off was widespread, with almost every sector taking a hit.

• Small and Mid-Cap Indices:
  • The Nifty SmallCap index plunged 2.09%, losing 317.3 points to hit an intraday low of 14,839.30.
  • The Nifty MidCap index dropped 1.89%, shedding 933 points to reach 48,203.75.
• Sectoral Performance:
  • The worst-performing indices included Nifty Metal (-2.13%), Nifty Realty (-1.88%), Nifty Auto (-1.89%), and Nifty Media (-1.78%).
  • PSU Bank, IT, and Consumer Durables stocks also saw declines of up to 1.5%.

What’s Next for the Markets?

Despite the ongoing sell-off, analysts remain cautiously optimistic about the market outlook for March.

"March is likely to witness a recovery in the Indian market, backed by better macro news flows and subdued FII selling," Vijayakumar noted. "Since large-cap valuations are fair, and in pockets attractive, FIIs are unlikely to press selling as aggressively during the last few months. Long-term investors can utilize the weakness in the market to slowly accumulate fairly-valued quality large caps and select fairly-valued stocks in the broader market, like defense stocks, for instance."

Technical Analysis: Key Levels to Watch

According to Jigar S Patel, Senior Manager of Equity Research at Anand Rathi, Nifty’s key support level is at 22,000, with resistance at 22,500.

• Short-Term Trading Range: Expected between 22,000 and 22,800.
• Bullish Butterfly Pattern: Formed near 22,300, suggesting a potential reversal.
• Breakout Potential: If Nifty surpasses 22,500, it could rally toward 22,800.

"If the pattern plays out, it could support a bullish move, with 22,500 acting as a crucial breakout level. Traders should monitor price action near these levels, as a decisive move beyond resistance may confirm further upside momentum," Patel added.

Conclusion

The Indian stock market’s sharp decline was triggered by a combination of global uncertainties, aggressive FII selling, and sectoral weakness. However, market experts suggest that investors with a long-term horizon should view this dip as a buying opportunity in quality large-cap stocks. With key support levels in focus, will the markets bounce back in March?