Stock Market Crash: Reasons Behind Sensex & Nifty Selloff
Global Market Selloff Intensifies: Tariffs, Dollar Strength, and Pharma Woes Drag Down Equities
Table of Contents
new U.S. tariffs and a surging dollar are creating a challenging surroundings for global markets, with Asian equities leading a broad selloff. Pharmaceutical stocks are also under pressure due to U.S. government actions, while technical indicators suggest further downside potential for key indices.
Weak Global Market Cues
Asian markets experienced a significant selloff on Friday, as investors grappled with the implications of new U.S.tariffs and anticipated crucial U.S. jobs data.The MSCI Asia-Pacific index, excluding Japan, saw a significant decline of 1.5%, extending its weekly losses to approximately 2.7%.
Japan’s Nikkei index slipped by 0.6%, while Chinese blue chips dropped 0.5%. Hong Kong’s Hang Seng index also registered a loss of over 1%. South Korea and Taiwan traded lower following the U.S. declaration of steep tariffs, including a 25% levy on Indian exports, 20% on Taiwan’s, 19% on Thailand’s, and 15% on South Korea’s.
This negative sentiment permeated European equities,with the Stoxx 600 falling 1% in early trading and heading towards its worst weekly performance since April. Wall Street futures also indicated a subdued opening, further dampening investor risk appetite globally.
Dollar Strength Intensifies pressure
The U.S. dollar index surged by a significant 2.5% during the week, climbing above the 100 mark to reach a two-month high. This marked the dollar’s strongest weekly performance in nearly three years. This robust dollar rally has exacerbated capital outflows from emerging markets, including India, and has consequently increased the cost of foreign debt for these nations.
“The sharp surge in the dollar index to 100 will nudge the FIIs to continue selling, putting pressure on largecaps too. Investors can adopt a wait and watch strategy,” commented Dr. VK Vijayakumar,Chief Investment strategist at Geojit Investments. This sentiment highlights the direct impact of dollar strength on foreign institutional investor (FII) behavior and its subsequent effect on equity markets.
Pharma Stocks Under Fire
The pharmaceutical sector faced significant pressure following the White House’s dispatch of letters to 17 global drugmakers. These letters urged the companies to reduce U.S. prescription drug prices to align with international benchmarks. Furthermore, the U.S. governance called for the adoption of a Most Favoured Nation (MFN) pricing model within 60 days, sparking concerns about increased regulatory scrutiny and potential margin compression for pharmaceutical companies.
The Nifty Pharma index reflected these concerns, falling 3.3% on Friday and extending its losing streak to a third consecutive session. The index closed the week 2.9% lower. Sun Pharma emerged as the biggest drag on the broader Nifty 50, with its shares slipping 4.5% after Investec downgraded the stock from “buy” to “sell.” Other notable underperformers in the pharmaceutical space included Aurobindo Pharma, Cipla, Lupin, and Gland Pharma.
Technicals Point to Further Downside
From a technical analysis perspective, the Nifty index remains under pressure. Rupak De,Senior Technical Analyst at LKP Securities,noted that the index failed to reclaim its 200-day moving average (DMA) on the hourly chart,despite a brief recovery on Thursday. He added that the index remained below the 50-exponential moving average (EMA) on the hourly timeframe throughout Friday’s session.
“On the daily chart, it has broken below the recent consolidation support at 24,600. Sentiment remains weak, with the potential for the correction to extend towards 24,400-24,450. A further decline is highly likely if it slips below 24,400,” De cautioned.
ajit Mishra, SVP - Research at Religare Broking, echoed this cautious outlook, stating that the Nifty is approaching its next crucial support level at 24,450. He warned that a breach of this level could trigger a retest of the long-term moving average, the 200-day EMA, which is situated near 24,180. “On the upside, the 24,800-25,000 zone is expected to act as a strong hurdle.We maintain our cautious stance and continue to recommend a hedged approach with a negative bias until clear signs of reversal emerge,” Mishra advised.