The Indian stock market experienced a significant downturn on June 3, 2025, with the Sensex plummeting nearly 800 points and the Nifty approaching the 24,500 mark. This decline has triggered concerns among investors and market analysts alike. Several factors, ranging from global cues to domestic dynamics, are contributing to this downward trend.
One of the primary drivers of the market decline is escalating global trade tensions. The recent announcement by former U.S. President Donald Trump to double tariffs on imported steel and aluminum, effective June 4, 2025, has created a ripple effect across global markets. This move has particularly impacted investor sentiment towards Indian metal exporters, including major players like Tata Steel, Hindalco, and JSW Steel. While the immediate impact may seem limited, the tariff hike introduces a significant level of uncertainty into the global trade environment. Simmering trade tensions between the U.S. and China further exacerbate these concerns, contributing to a risk-off sentiment among investors.
Another significant factor influencing the Indian stock market is the consistent outflow of foreign funds. Foreign Institutional Investors (FIIs) have been net sellers in the Indian equity market for several sessions, adding substantial pressure on domestic stocks. Data indicates that FIIs offloaded shares worth ₹2,589.47 crore on June 2 alone. This selling pressure is attributed to a fresh uptick in the dollar index and the stretched valuations of Indian equities, making them less attractive compared to other investment destinations. The attractiveness of U.S. assets is further amplified by higher yields in U.S. treasuries, prompting FIIs to shift their investments.
Geopolitical uncertainty also plays a crucial role in the market's current volatility. Heightened tensions in Eastern Europe, particularly between Russia and Ukraine, and West Asia have resurfaced, creating an environment of caution among investors. Concerns over continued drone attacks and stalled nuclear talks add to the unease, prompting investors to adopt a wait-and-watch approach.
Domestically, the market lacks fresh positive triggers that could propel the key indices above their current range. While India's economic growth outlook remains strong in the medium to long term, near-term factors such as tepid earnings growth and geopolitical developments keep investors on the sidelines. Although the Q4FY25 earnings were better than expected, forward earnings revisions continue to exhibit weakness, with downgrades surpassing upgrades.
Furthermore, market experts suggest that investors are engaging in profit booking in select heavyweight stocks, including HDFC Bank and Reliance Industries, which is contributing to the benchmark indices' decline. This profit booking, combined with technical factors, further intensifies the market's downward trajectory.
Concerns surrounding rising crude oil prices are also weighing on investor sentiment. Brent crude, the international benchmark, has risen, posing a risk for India, which imports over 85 percent of its oil requirement. Additionally, the upcoming Reserve Bank of India (RBI) Monetary Policy Committee (MPC) meeting outcome on June 6 adds an element of nervousness to the market. While a status quo on rates is widely expected, the commentary on inflation and liquidity will be closely analyzed.
In summary, the Indian stock market's recent decline can be attributed to a confluence of global and domestic factors. These include escalating trade tensions, sustained foreign fund outflows, geopolitical uncertainties, a lack of fresh positive triggers, profit booking, rising crude oil prices, and anticipation surrounding the RBI's policy decision. Investors are advised to remain cautious and adopt a level-based trading strategy, closely monitoring key support levels to navigate the market's current non-directional trend.
