Dalal Street Sees Red: Sensex & Nifty Snap Winning Streak Amid Profit Booking and Global Cues

Indian benchmark indices, the BSE Sensex and NSE Nifty 50, tumbled on Tuesday, May 27, 2025, bringing an end to their two-day winning streak as investors opted for profit-booking amid a confluence of weak global market signals, concerns over stretched valuations, and caution preceding the release of crucial domestic economic data.

The Indian stock market witnessed a significant downturn today, with headline indices succumbing to selling pressure after a brief recovery phase. The 30-share BSE Sensex closed the session at 81,551.63, down by 624.82 points or 0.76%. During the day, the index experienced a sharper plunge, tanking 1,054.75 points or 1.28% to an intraday low of 81,121.70.

Similarly, the 50-share NSE Nifty 50 index settled 174.95 points or 0.70% lower at 24,826.20. The index also breached the psychologically important 24,900 mark during the session. The market fall led to a substantial erosion in investor wealth, with the total market capitalisation of BSE-listed firms declining by over ₹2.11 lakh crore to ₹442.68 lakh crore.

Timeline and Market Reaction

The trading session on Dalal Street began on a weak note on Tuesday morning, tracking subdued cues from Asian peers. US markets were closed on Monday for Memorial Day, offering little immediate direction. As the day progressed, Indian indices extended their losses, with selling intensifying across various sectors.

The volatility index, India VIX, which gauges market fear, reflected the cautious sentiment, settling higher by 2.86% at 18.54 points. This indicates an increase in expected market volatility in the near term.

The rupee also felt the pressure, closing at 85.33 against the US dollar, down 0.3% from its previous close.

Catalysts Behind the Correction

Several factors contributed to today’s market decline:

1. Profit-Booking: After a two-session rally, investors chose to lock in gains, a common market behaviour following a swift upward movement.
2. Weak Global Cues: Asian markets traded lower, partly due to concerns over potential US tax plan changes, which influenced sentiment in India.
3. Foreign Institutional Investor (FII) Activity: While FIIs made net purchases of ₹135.98 crore on Monday, May 26, the broader trend in May has seen them as net sellers, indicating a cautious stance. Equitymaster reported that FPI buying was a mere ₹1.4 billion on May 26.
4. Stretched Valuations: Some analysts believe that current market valuations, particularly for the Nifty 50, are high, making the market susceptible to corrections.
5. Caution Ahead of Economic Data: Investors adopted a wait-and-watch approach ahead of the release of key domestic economic indicators. India’s industrial and manufacturing production data for April is expected on Wednesday, followed by the first-quarter GDP numbers later in the week.
6. Lack of Immediate Positive Triggers: Despite a positive long-term outlook supported by a strong economy and good monsoon forecasts, the market is currently searching for fresh positive catalysts to sustain upward momentum.

Sectoral Impact and Stock Movements

The selling pressure was broad-based, with most sectoral indices ending in the red. Major losers included the Nifty Bank, Nifty IT, Nifty Auto, Nifty FMCG, Nifty Financial Services, Nifty Metal, Nifty Consumer Durables, and Nifty Oil & Gas indices, which fell by up to 0.88%.

Among the Sensex constituents, 24 out of 30 stocks closed lower. UltraTech Cement was the top laggard, falling by 2.21%, followed by ITC (down 2.01%). Other prominent losers included Tata Motors, NTPC, Axis Bank, HCL Technologies, Mahindra & Mahindra, HDFC Bank, and ICICI Bank.

However, it wasn’t a completely one-sided affair. The broader markets showed some resilience, outperforming the headline indices. The Nifty Midcap 100 index rose by 0.15%, and the Nifty Smallcap 100 index gained 0.10%. Some sectors like Nifty PSU Bank, Nifty Realty, and Nifty Pharma managed to eke out gains.

A few Sensex stocks bucked the negative trend, with IndusInd Bank emerging as the top gainer (up around 2.6%), along with Sun Pharma, Adani Ports, Nestle India, Bharti Airtel, and SBI.

Expert Remarks

Market experts suggest a period of consolidation might be on the cards. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, commented, “In the near-term the market is likely to consolidate around the current levels. Since mutual funds are sitting on sizeable cash any dip will be bought into and high valuations will trigger selling on rallies. A sustained rally will happen only when leading indicators suggest revival in earnings growth. That is some time away.”

Implications for Retail Investors

Today’s market correction serves as a reminder of the inherent volatility in equity markets. For retail investors, such phases underscore the importance of:

• Sticking to Asset Allocation: Maintaining a diversified portfolio aligned with one’s risk appetite and financial goals.
• Focusing on Quality: Investing in fundamentally strong companies with good long-term prospects.
• Avoiding Panic Selling: Short-term corrections are part of the market cycle. Decisions should be based on investment objectives rather than market noise.
• Systematic Investing: Continuing with Systematic Investment Plans (SIPs) can help average out purchase costs during volatile periods.

What to Watch Next

Investors will be keenly watching the following developments:

• Domestic Economic Data: The upcoming release of India’s industrial production, manufacturing output, and Q1 GDP figures will be crucial for market direction.
• Global Market Trends: Cues from international markets, particularly regarding inflation, interest rate outlooks, and geopolitical developments, will continue to influence domestic sentiment.
• FII Flows: The investment pattern of foreign institutional investors will be closely monitored. A return of consistent FII buying could support the market.
• Monsoon Progress: The advancement and distribution of the monsoon will be critical for the agricultural sector and rural demand.
• Technical Levels: For the Nifty 50, the immediate support levels will be watched. A decisive break below recent lows could signal further weakness, while holding key supports might lead to consolidation or a bounce. Analysts had earlier pointed to 24,800 as a support for Nifty.

The market is expected to remain sensitive to these factors in the coming days.

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Disclaimer: This article is for informational purposes only and does not constitute financial advice. Always do your own research before investing.