The Indian stock market experienced a significant downturn on Thursday, with the Sensex shedding over 1,000 points by early afternoon. The Nifty index also retreated, falling below the 22,300 mark as foreign institutional investors (FIIs) sustained a heavy selling streak. The market rout resulted in a sharp decline in the total market capitalization of BSE-listed firms, which dropped from Rs 4,71,86,292 crore at the market open to Rs 4,62,71,545 crore by 1:45 pm, wiping out approximately Rs 9 lakh crore in value.
This aggressive sell-off follows a period of sustained divestment by foreign investors, who offloaded more than Rs 10,000 crore in Indian equities on September 30 alone. This brings the total FII selling over the preceding two sessions to over Rs 20,000 crore. Analysts point to a confluence of macroeconomic pressures, including rising US 10-year Treasury yields—which have climbed above 5.3 percent—and a weakening rupee, which has slipped beyond 96 against the US dollar. Furthermore, concerns over energy prices due to supply disruptions linked to the conflict with Iran, alongside a spike in the India VIX volatility gauge, have exacerbated market instability.
Eshaan Lazarus, Founder and CEO of 021 Trade, noted that headline indices like the Nifty 50 may not fully reflect the experience of retail investors, who have increasingly shifted their portfolios toward mid-cap and small-cap stocks. "The Nifty 50 tells only part of the story. Nifty MIDSMALL400 index is just 5 to 6 per cent off its high. Nifty is not the right benchmark as most investors prefer mid and small cap stocks. SIP money has steadily tilted away from large caps toward mid and small caps over five years," Lazarus said.
Lazarus also highlighted that the current market sentiment is influenced by the rapid influx of new investors who entered the market during a period of high returns. "Part of the disappointment, in my view, also comes from the expectations built during strong markets. NSE's registered investor base more than tripled between the end of 2020 and 2025, showing how many investors are relatively new to the market. Those investors who have only experienced annual returns of 20 to 30 percent will find single-digit returns to be disappointing," he added.
Comparing India's performance to global benchmarks, Lazarus observed a notable divergence. "By the end of September, the MSCI Emerging Markets Index had increased by more than 20 per cent on a dollar basis, whereas the Nifty 50 had dropped by about 13 per cent on a rupee basis, and the rupee had weakened from approximately 90 to above 96 against the dollar this year." Despite the immediate volatility, he advised that investors should maintain a long-term perspective, stating, "In the long term, stocks are still worth looking at. The choice between selling or investing should not be based entirely on whether the market is down today."
