Sensex Crashes 1300 Points In Just Two Days; Why Is The Indian Market Falling Despite Hitting All Time Highs?

The Indian stock market witnessed a steep correction on Tuesday as the BSE Sensex plunged over 630 points in early trade. Combined with Monday’s fall, the benchmark has now lost more than 1,300 points in just two trading sessions, wiping out gains made after hitting lifetime highs last week.

Opening bell data showed a slump for major indices. The Nifty 50 began trading at 25,867.10, down 93.45 points (or -0.36%) and the BSE Sensex opened at 84,742.87, reflecting a loss of 359.82 points (or -0.42%).

Key Reasons Driving the Market Decline:

Heavy Foreign Institutional Investor (FII) Selling

Foreign portfolio investors have turned sellers in December. Data shows FIIs offloaded shares worth $1.32 billion in the first six sessions of the month, almost three times the $425 million sold in the entire November, according to Reuters.

Sustained outflows have drained liquidity at a time when primary market issuances and promoter stake sales are also sucking out domestic money.

Caution Ahead of US Federal Reserve Policy Outcome

The US Fed begins its two-day FOMC meeting today. While a 25-basis-point rate cut on Wednesday is widely priced in, investors are worried about the U.S. Fed’s commentary on future cuts in 2026.

Wall Street banks have already reduced their forecasts for next year’s easing, citing sticky inflation and a resilient US economy. As per Reuters,  a hawkish tone from Jerome Powell could trigger risk-off sentiment across emerging markets, including India.

Renewed Uncertainty Over US-India Trade Deal and Fresh Tariff Threats

Fresh remarks by US President Donald Trump about imposing an additional 25% tariff on rice imports from India have rattled sentiment. The statement came just as a high-level US trade delegation, led by Deputy USTR Rick Switzer and chief negotiator Brendan Lynch, is scheduled to arrive in New Delhi today for crucial talks on 10-11 December.

Although both sides are pushing for a bilateral trade agreement, the lack of visible progress and the new tariff threat have dashed near-term hopes. Markets fear prolonged uncertainty will hurt Indian agricultural exports and wider investment sentiment.

Rupee Breaches Key 90-Level Against Dollar

The Indian currency has weakened sharply past the psychological 90 mark versus the US dollar. Persistent FII outflows, higher oil prices and dollar strength and inflation concerns have kept the rupee under pressure despite a relatively softer dollar index globally.

A weaker currency raises imported inflation risks and dents investor confidence further.

Expert Takes on the Volatility

Ajay Bagga, a banking and markets specialist, shared with ANI: “We have reached oversold territory on technical indicators. FPI positioning is back at 88% net short, combined with Trump’s tariff comments and a likely hawkish Fed cut, has created a perfect storm of negativity. Any positive trigger, be it a dovish Fed surprise or a breakthrough in trade talks, can lead to a sharp bounce.”

Sugandha Sachdeva, founder of SS WealthStreet, highlighted the rapid shift, “After briefly touching a new record high near 26,325, the benchmark Nifty has drifted lower amid rising concerns over the delay in the US-India trade deal and continued FII outflows. Sentiment has also been hit by the Indian Rupee weakening to a fresh record low of 90.43, signalling external vulnerability.”

She pegged an 88% chance of the Fed cut but flagged wariness on 2026 guidance, given stubborn US price pressures, a drag on flows to markets like India.

Trump’s tariff hint on rice, she added, is piling on the strain, with December outflows already dwarfing last month's total.

On brighter notes, Sachdeva pointed to "strong domestic macro fundamentals-  India’s Q2 GDP surged 8.2% in the second quarter, inflation remains benign and the RBI has delivered a cumulative 125 bps of rate cuts this year."

She added, "However, until the tariff overhang and global uncertainties ease, markets are likely to remain cautious. For now, the index holds strong support near 25,350 and as long as this level remains intact, the broader uptrend stays firm. A decisive breakout above 26,350 could reignite momentum and open the path toward new highs of 27,400 in the coming months."

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