The Indian benchmark indices started the week under pressure, with the sell-off deepening as trading progressed.
The Sensex slipped more than 1,000 points, falling around 1.37% below the 72,100 mark, while the Nifty dropped more than 300 points, down over 1.37%, to trade below 22,900.
The weakness comes after both benchmark indices recorded their seventh straight weekly decline last week, marking their longest losing streak since 2020. Rising crude oil prices, elevated US bond yields, foreign investor selling and renewed geopolitical uncertainty are keeping investors cautious.
The pressure is not limited to large-cap stocks. The broader market is also seeing selling, with the BSE Midcap index down 1.56%, while the Nifty Midcap 100 and Nifty Smallcap 100 declined 1% and 1.2%, respectively.
What is driving the market lower today? Here are the key factors investors are watching.
1. Crude oil climbs as US-Iran tension remain unresolved
Crude oil remains one of the biggest concerns for Indian equities. Brent crude has moved around the $106-a-barrel level, raising concerns about India’s import bill, inflation and the rupee. This rally follows the 8% surge in crude rates in the last 1 week.
The latest pressure came after US President Donald Trump said he had rejected an Iranian proposal linked to reopening the Strait of Hormuz and ending the fighting. Iran, meanwhile, maintained that diplomacy was the way forward.
The Strait of Hormuz is particularly important for global energy supplies. Any prolonged disruption can keep oil prices elevated, which is a concern for a major crude importer such as India.
2. US bond yields remain a major headwind
The second pressure point is the US bond market. The US 10-year Treasury yield has moved up to around 5.2%. Not only is this a multi-decade high, it is also a level that can make emerging-market assets relatively less attractive.
Higher US yields can also support the dollar and make foreign investors more cautious about allocating money to markets such as India.
V K Vijayakumar, Chief Investment Strategist at Geojit Investments, described the situation as a clash between domestic strength and global pressure.
“Two apparently contradictory trends – in the economy and markets- deserve attention. The economy is resilient and corporate earnings are improving, but the market is steadily going down. This is a case of external headwinds overpowering domestic tailwinds. Brent crude at $106 and the US 10-year yield at 5.2% are strong headwinds that are weighing on markets,” he noted.
3. Foreign investors turn sellers again
Foreign portfolio investor activity is another important factor behind the market weakness.
After buying in July and August, foreign investors have again turned sellers in September. Their selling has added pressure to Indian equities at a time when global markets are also dealing with higher oil prices and bond yields.
According to Vijayakumar, this shift is important for the near-term direction of the market.
“FPIs, after turning buyers in July and August have again turned sellers in September. This scenario will keep the market under pressure in the near-term,” he said.
4. Small and midcaps selloff
The selling is no longer confined to benchmark stocks. Small and midcap stocks are also witnessing pressure.
The BSE Midcap index was down 1.56%, while the Nifty Smallcap 100 fell 1.20% and the Nifty Midcap 100 declined 1.08%.
However, Vijayakumar pointed out that the broader market has behaved differently from large-caps in recent months.
“From the market perspective an important trend is that even though FPIs are sellers in large-caps, they continue to buy mid-and small-caps despite their elevated valuations. The broader market is where the momentum is. This is likely to be a short-term phase,” he added.
5. Sector-wide selling adds to the pressure
The market decline is broad-based, with all Nifty sectoral indices trading in the red.
Auto, financial services, metals, realty and FMCG stocks are among the sectors seeing declines of around 1-2%.
Several heavyweight stocks are also contributing to the fall. Bajaj Finserv declined 1.53%, HDFC Bank fell 1.54%, Hindustan Unilever slipped 1.65%, Kotak Mahindra Bank declined 1.71%, while Bajaj Finance was down 1.71%.
What investors need to watch
For investors trying to understand where the market goes from here, crude oil and US bond yields remain two key variables.
Vijayakumar said the valuation gap between large-caps and mid- and small-caps may not remain in place indefinitely.
“The valuation differential between large-caps on one side and mid-and small-caps on the other, will not last long. A reversion to mean is inevitable. This will happen only when crude and US bond yields cool,” he added.