The Indian stock market experienced a significant downturn on May 22, 2025, with the Sensex plummeting approximately 800 points and the Nifty breaching the 24,600 mark. This sharp decline reversed the gains made in the previous session and triggered concerns among investors. Several factors contributed to this market slump, ranging from global cues to domestic concerns.
One of the primary drivers behind the market fall was weak global cues. Asian markets mirrored losses on Wall Street due to a sharp rise in U.S. Treasury yields, reigniting concerns over the country's growing budget deficit. Specifically, yields on longer-dated U.S. Treasuries hit their highest levels in 18 months, with the 30-year Treasury bond yield remaining above 5% after hitting a 1.5-year high in Asian trade. Rising yields tend to divert capital away from equities, especially in emerging markets like India.
Adding to the negative sentiment, Moody's downgrade of the U.S. credit rating further intensified global risk aversion. The downgrade, citing concerns over the U.S.'s rising debt burden, has weighed on both Wall Street and Asian markets. Investors are also closely monitoring the proposed tax bill, which could add trillions to the already substantial U.S. debt.
According to Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, the fundamental issue is the high fiscal deficit of the U.S., which the market feels is unsustainable. He noted that the weak U.S. 20-year bond auction and the spike in yields of various bonds indicate declining confidence in U.S. bonds. Rising U.S. bond yields are generally negative for emerging markets, potentially triggering capital flows away from the U.S. to economies with better growth and earnings prospects.
Domestically, all 13 sectoral indices on the NSE were trading in negative territory, with the IT index experiencing a significant fall. Other sectors, including FMCG, pharma, banking, and financial services, also contributed to the decline. Selling pressure from heavyweight stocks like Reliance Industries, HDFC Bank, Infosys, and ICICI Bank further dragged the markets lower.
Furthermore, technical factors may have also played a role in the market downturn. Prashanth Tapse, Senior VP (Research) at Mehta Equities, suggested that bears could be taking charge due to a mix of global worries, renewed COVID-19 concerns, and technically overbought signals. He added that the intraday bias remains neutral to negative below the 25,000 mark, with key support seen at 24,386.
In addition to the above factors, a sudden spike in COVID-19 cases in several parts of Asia, including Singapore, Hong Kong, China, and Thailand, has raised concerns, prompting investors to reduce their exposure to equity markets. The surge in COVID-19 cases is reportedly driven by the JN.1 variant, which has caused higher hospitalization rates and mortality in some regions.
In conclusion, the Indian stock market's sharp decline on May 22, 2025, can be attributed to a combination of global and domestic factors. Weak global cues, concerns over the U.S. fiscal deficit and debt, rising U.S. Treasury yields, Moody's downgrade of the U.S. credit rating, selling pressure in heavyweight stocks, technical factors, and renewed COVID-19 concerns all contributed to the market downturn. Investors are closely monitoring these developments and adopting a cautious approach amid the prevailing market volatility.
