The Indian stock market remained in the negative territory for the third consecutive session on Wednesday, January 21, as rising geopolitical and geoeconomic concerns dealt a heavy blow to market sentiment.
The Sensex crashed over 1,050 points, or 1.3%, to hit an intraday low of 81,124.45, while the Nifty 50 breached its 200 DEMA (daily exponential moving average), placed around the 25,150 level, and touched its intraday low of 24,919.80.
The sell-off remained broad-based, with the BSE Midcap and Smallcap indices crashing by 2% each.
The Sensex has crashed more than 2,400 points, or nearly 3%, while the Nifty 50, too, has plunged 3% over the last three days.
In just three consecutive sessions, investors have lost about ₹18 lakh crore as the overall market capitalisation of BSE-listed firms has dropped to below ₹450 lakh crore from ₹468 lakh crore on Friday.
Why is the Indian stock market falling?
Let’s take a look at five key factors behind the fall in the Indian stock market:
1. Tariff war jitters
Investors appear to be nervous about the prospects of a trade war between the United States (US) and the European Union (EU) as US President Donald Trump is not ready to back down from his push to acquire Greenland.
After Trump announced a 10% tariff on eight European countries from February 1 and said the tariffs would increase to 25% from June 1, European countries are reportedly considering retaliatory measures that could trigger a trade war and impact global economic growth.
As per media reports, the European Parliament may soon announce the suspension of approval of the US trade deal agreed in July.
“There is risk-off sentiment in global markets now in response to Trump’s Greenland policy, the threatened tariffs on eight European countries and Europe’s hardening anti-Trump stance. If the threatened tariffs come into effect, Europe will retaliate, and this will lead to a trade war with bad consequences for global trade and global growth,” VK Vijayakumar, Chief Investment Strategist, Geojit Investments, noted.
2. Rupee falls to a record low
As per Bloomberg, the Indian rupee fell to a record low of 91.34 per dollar, falling for a sixth consecutive session.
The Indian rupee has seen sharp weakness against the dollar over the last year due to foreign capital outflow and US tariffs on Indian goods.
The domestic currency has declined by almost 2% against the US dollar in 2026 so far, after a 5% drop last year.
The RBI has intervened to support the currency, but its intervention has been relatively lower.
“The rupee is now market-determined, but that doesn’t mean the RBI has stepped away completely. If the RBI had not intervened at all, the rupee would have weakened much more, given the current global tensions,” said G Chokkalingam, the founder and head of research at Equinomics Research Private Limited.
“The RBI allows the rupee to find its level based on market forces, but it intervenes during extreme volatility. This is necessary, especially because India has over $700 billion in external debt,” said Chokkalingam.
3. Massive FII selling
Foreign institutional investors (FIIs) continue selling Indian stocks heavily amid increased geopolitical and geoeconomic risks. In January so far (till the 20th), they have sold off Indian stocks worth over ₹32,000 crore in the cash segment.
Foreign institutional investors (FIIs) have been net sellers of Indian equities in the cash segment since July, pulling out more than ₹2.2 lakh crore.
4. Risk-averse sentiment
The market is witnessing risk-averse sentiment due to increased geopolitical risks, unimpressive earnings and caution ahead of the Union Budget 2026.
Retail investors are selling riskier equities amid prevailing uncertainties over how Trump’s tariff policies will impact global economic growth, and rushing to safe-haven assets like gold and silver to hedge against uncertainties.
Another factor causing the decline in the mid and small-cap segment is the tight liquidity situation.
“Many of these stocks have corrected 30% to 50%, which has wiped out liquidity. Retail investors are now trapped in these stocks and are unable to rejig their portfolios, further tightening liquidity in the system,” said Chokkalingam.
5. Technical factor: Nifty falls below 200 DEMA
The Nifty 50 has breached the 200 DEMA, placed around the 25,150 level.
“In the event of a rebound, the 25,400–25,600 zone is likely to act as an immediate hurdle, while a decisive break below the long-term moving average could open the door for further downside towards the 24,900 level,” said Ajit Mishra, SVP of Research, Religare Broking.
According to Sudeep Shah, Head – Technical and Derivatives Research at SBI Securities, a breakdown below 25,080 support could extend the fall towards 24,900 in the short term, where the next demand zone is likely to emerge.
“Overall, the trend remains bearish, and the index will need a decisive move above 25,400 to signal any meaningful pause or reversal in the ongoing corrective phase,” said Shah.
Read all market-related news here
Read more stories by Nishant Kumar
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.