What caused the bloodbath on Dalal Street that the index of the Bombay Stock Exchange crashed 2,500 points in five days, wiping out more than 18 lakh of market valuation?

Even after days of selling pressure and prices coming down, the BSE opened at 77,384.98 against its previous close of 77,311.80 and further nosedived 1,281 points to 76,030.59 on Tuesday.

Nifty 50 was not different either as it opened at 23,383.55 against its previous close of 23,381.60 and fell 395 points to 22,986.65.

US Tariffs On Steel, Aluminium

Analysts believe the latest provocation was US President Donald Trump’s announcement of imposing an additional tariff of 25% on steel and aluminium imports.

Though India exports a miniscule fraction of what America imports, the steel industry shuddered apprehending a double whammy with the possibility of China dumping its products here.

However, neither steel was the only sector nor the US decision only reason for the bloodbath.

Selling Spree Of FII

The stocks came under selling pressure also because the Foreign Institutional Investors (FII) were on a selling spree, and they sold stocks worth Rs 12,643 crore on Monday. They have taken out a whopping amount of Rs 2.75 lakh crore from the Indian stock market.

Ahead of the US decision to impose tariffs on steel and aluminium products, Donald Trump also said that he would impose the tariff on all imports.

Though a general tariff is yet to come, Washington announced to impose punitive tariffs on imports coming from Canada, Mexico and China.

All these announcements indicated the beginning of a trade war. It dampened the sentiments.

Besides, corporate results of Q3 did not meet expectations, though they were marginally better than those of Q2. It raised the concern that many stocks were moving their fundamentals.

Falling Rupee

Indian rupee crashed against US Dollar after the Federal Reserve cut its rates. It breached the psychological level of 86 and kept on falling further.

The rupee against the greenback reached 87.43 on Monday. Though the rupee gained 61 paise to touch 86.84 against the US dollar in early trade amid speculations of an intervention by the Reserve Bank of India, it was not very helpful.

The falling rupee was one of the reasons for the Sensex and the Nifty to nosedive.

Earlier on January 6, the Sensex tumbled 1,258.12 points, or 1.59%, to settle for the day at 77,964.99, while the NSE index Nifty 50 shed 388.7 points, or 1.62%, to close at 23,616.05. However, no one who knew the present share market scenario was shocked. It was almost written on the wall.

It was triggered by the higher yield of the US Treasury bonds

The yield on US 30-year bonds climbed to 4.85%, the highest rate since late 2023.

As the US Treasury market is gearing up to issue fresh government debt for $119 billion, the yield on 30-year US bonds climbed to 4.85%, the highest rate since late 2023.

Why the US-based FPIs working in India would not exploit this situation and sell their portfolios?

Experts believe, despite the correction, the Indian stocks are still expensive and they may need further correction.

Analysts believe, the share market may not register a massive improvement shortly, though there might be ups and downs.