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The Indian stock market experienced a downturn on February 20th, 2025, with the Sensex falling 250 points (0.3 percent) to 75,691 and the Nifty dropping 50 points (0.2 percent) to 22,885. This decline was primarily attributed to weakness in financial stocks, exacerbated by global trade tensions and concerns about sluggish earnings growth. The sell-off reflects broader anxieties surrounding premium valuations and uncertainty stemming from US trade policies, particularly President Trump's announced tariffs on auto, pharmaceutical, and semiconductor imports. These tariffs, ranging from 25 percent upwards, pose significant challenges for countries like South Korea and Japan in auto exports and India's substantial pharmaceutical trade with the US. The market's reaction underscores the interconnectedness of global economies and the sensitivity of investor sentiment to geopolitical events.
While the benchmark indices experienced losses, a contrasting trend emerged in the mid-cap and small-cap segments. The BSE Midcap index climbed 0.6 percent, and the BSE Smallcap index advanced by 1 percent. This divergence highlights the inherent differences in risk profiles and investor sentiment within the market. While large-cap stocks, often heavily weighted by financial institutions and more susceptible to global macroeconomic factors, experienced downward pressure, smaller companies showed resilience. However, this relative outperformance needs to be viewed within the context of their overall performance year-to-date and from their all-time highs. Mid-caps remain 17 percent below their peaks, and small-caps are down 21 percent, indicating a significant recovery is still needed before they regain their previous levels. Experts attribute this discrepancy to a variety of factors, including differing levels of exposure to Foreign Institutional Investors (FIIs) and valuation concerns, along with the impact of macroeconomic risks such as weaker GDP growth and increased global risk-off sentiment.
The market's current state is characterized by range-bound movement, according to analysts like Amish Shah of Taurus Corporate Advisory Services. Shah suggests that much of the volatility from earnings announcements and Trump's policy announcements has already been factored into the market. He points out that upcoming fourth-quarter results are largely discounted, reducing the immediate triggers for significant market shifts. This range-bound movement, however, remains uncertain, contingent upon shifts in Foreign Institutional Investor (FII) activity. A return to net buying by FIIs, or at least a significant slowdown in their selling, would be crucial in altering the market trajectory. In February alone, FIIs sold Rs 30,216 crore worth of Indian equities, while Domestic Institutional Investors (DIIs) offset some of this by absorbing Rs 35,809 crore. This underscores the importance of domestic investor confidence in stabilizing the market amidst foreign capital outflows. The prevailing economic slowdown in India, coupled with corporate earnings that have failed to meet expectations, further complicates the market outlook.
Sectoral performance was mixed, reflecting the diverse responses to the prevailing market conditions. Financial stocks, heavily influenced by broader macroeconomic concerns, experienced notable declines, with Nifty Bank and Nifty Private Bank indices dropping over half a percent. In contrast, oil and gas and auto stocks bucked the downward trend, registering gains of around 1 percent. The Nifty FMCG index extended its losing streak to 14 sessions, erasing Rs 2.7 lakh crore in investor wealth. This prolonged decline is attributed to weak demand and margin pressures, outweighing the initial positive impact of the post-budget rally fueled by personal income tax benefits. The tobacco sector also witnessed a significant sell-off amid reports of a potential Goods and Services Tax (GST) rate hike on cigarettes and other tobacco products, impacting stocks like ITC, Godfrey Phillips, and VST Industries. Conversely, some individual stocks performed well, with Hindalco, Adani Ports, M&M, NTPC, and Shriram Finance among the top gainers. The contrasting performances underscore the sector-specific dynamics and the selective nature of the current market movements.
Aishvarya Dadheech, Founder & CIO of Fident Asset Management, anticipates more limited downside for small-cap stocks compared to mid-caps. This view acknowledges the higher FII exposure and valuation concerns associated with mid-cap stocks, making them potentially more vulnerable to intensified macro risks. The overall market sentiment remains cautious, with analysts closely monitoring support levels. Shah cautions that support levels around 22,800-22,700 for the Nifty need daily reassessment, highlighting the continued uncertainty and search for a definitive market bottom. The confluence of global trade tensions, domestic economic challenges, and shifting investor sentiment continues to shape the trajectory of the Indian stock market, making it imperative for investors to exercise caution and seek expert advice before making any investment decisions.
Source: Sensex falls 250 pts, Nifty below 22,900; financial stocks drag; mid-, small-caps outperform