The Indian stock market downtrend has raised investor anxiety this week as the benchmark Sensex witnessed a steep drop of over 1,400 points in just four consecutive sessions. Likewise, the Nifty 50 index also retreated by nearly 2%, slipping below the 25,100 mark.
On Monday, July 14, the Sensex fell by over 400 points, hitting an intraday low of 82,059, while the Nifty 50 dipped half a percent to 25,019.75. This extended the market’s negative momentum, bringing the total drop to over 1,650 points in just four trading days.
Despite this downtrend, the broader markets have remained surprisingly resilient, with BSE Midcap and Smallcap indices recording gains of half a percent. This divergence in market performance is reflective of broader structural shifts in market sentiment.
So, what’s behind this significant Indian stock market downtrend? Let’s decode the five major reasons behind this negative sentiment:
1. Indian Stock Market Downtrend: Global Trade War Tensions Escalate
A major contributor to the current Indian stock market downtrend is rising global trade uncertainty. US President Donald Trump’s aggressive tariff measures have reignited trade war fears. After already imposing a 35% tariff on Canadian imports, he announced a 30% tariff on goods from Mexico and the European Union, effective August 1.
While there are media reports of a possible US-India interim trade deal, expected to bring down tariffs to under 20%, nothing has been confirmed yet. A delay or breakdown in these talks could deepen investor nervousness.
According to VK Vijayakumar, Chief Investment Strategist at Geojit Financial, “Markets are cautiously optimistic about a trade deal. Any negative surprise on this front could drag indices lower.”
This ongoing uncertainty is dampening global risk appetite and spilling over into Indian equities, leading to further pressure on the indices.
2. Indian Stock Market Downtrend: Shift from Large-Caps to Mid and Small-Caps
Retail investors are increasingly shifting away from large-cap stocks, which dominate the Sensex and Nifty 50, and are focusing more on mid- and small-cap stocks.
Experts attribute this behavior to rising retail participation and expectations of stronger earnings in the broader market.
“More than 22 crore retail investors are now registered in India, with nearly six lakh new accounts added every week,” noted G. Chokkalingam, Founder of Equinomics Research.
This robust retail flow is supporting mid and small-cap indices, even as heavyweight large-caps face selling pressure, contributing to the current benchmark weakness.
3. Indian Stock Market Downtrend: Foreign Capital Outflows Hurt Market Sentiment
Another major reason for the Indian stock market downtrend is the outflow of foreign funds. Foreign Portfolio Investors (FPIs), who were net buyers for four straight months, have turned sellers in July.
So far this month, FPIs have offloaded ₹10,000 crore worth of Indian equities in the cash segment alone. This exodus is especially harmful for large-cap stocks, which have higher FPI exposure.
With the US dollar strengthening and yields rising, global investors are becoming increasingly risk-averse, withdrawing funds from emerging markets like India.
4. Indian Stock Market Downtrend: Concerns Over Stretched Valuations
Investor confidence has also been dented by concerns that Indian equities, especially large-caps, are overvalued. The Price-to-Earnings (P/E) ratio of the Nifty 50 currently stands at 22.6, which is above its one-year average of 22.2.
Moreover, Q1 FY26 earnings are expected to be mixed, further discouraging fresh buying at these elevated levels.
Analysts suggest that meaningful earnings upgrades may not occur until after the September quarter, creating a temporary vacuum in bullish sentiment.
5. Indian Stock Market Downtrend: Technical Indicators Signal More Weakness
From a technical perspective, the markets are showing signs of continued weakness. According to Shrikant Chouhan, Head of Equity Research at Kotak Securities, the Sensex and Nifty 50 need to cross 25,350/83,200 levels for any meaningful recovery.
“As long as the market remains below these thresholds, it may fall further towards 24,800-24,900 for Nifty and 81,200 for the Sensex,” said Chouhan.
Akshay Chinchalkar of Axis Securities also pointed out that the Nifty 50 closed below its rising channel support on Friday, opening the door for a test of 24,900–25,000 zone in the near term.
📉 Conclusion: A Cautious Outlook for the Indian Stock Market
In summary, the Indian stock market downtrend is being driven by a confluence of global and domestic factors—ranging from trade war jitters and FPI outflows to valuation concerns and technical weaknesses. Although mid- and small-cap stocks provide a glimmer of hope, large-cap indices such as the Sensex and Nifty 50 continue to face significant downward pressure.
For long-term investors, this could be a healthy correction that offers entry points once volatility settles. However, in the short term, caution is warranted, especially amid global headwinds and pending economic data.
Investors are advised to stay informed, diversified, and avoid knee-jerk reactions during this phase of uncertainty. While volatility is unsettling, it often sets the stage for stronger, more resilient market recoveries in the future.
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