After a short-lived rally, the Indian stock market witnessed a sharp sell-off on Tuesday, May 27, as benchmark indices the Sensex and Nifty 50 plunged over 1% in intraday trade. The Sensex opened at 82,038.20—lower than its previous close of 82,176.45—and nosedived more than 900 points to touch an intraday low of 81,261.96. The Nifty 50 followed suit, dropping to 24,737.70 from its opening mark of 24,956.65.
By around 10:30 AM, the Sensex was down by 839 points or 1.02% at 81,337, while the Nifty was trading 242 points or 0.97% lower at 24,759. Despite the bloodbath in large-cap indices, the broader markets showed resilience, with mid and small-cap segments posting only mild losses.
So, what triggered this sudden correction? Here are five key factors behind today’s fall in the Indian stock market:
1. Profit Booking Amid Global Weakness
Investors rushed to book profits after two consecutive sessions of gains, as global cues turned bearish. Asian markets including Japan’s Nikkei and South Korea’s Kospi were in the red, tracking fears that U.S. fiscal policies—especially concerns over the impact of former President Donald Trump’s proposed tax-cut bill—may worsen the U.S. fiscal deficit.
With sentiment weakening across global bourses, investors took the opportunity to lock in gains. By 10 AM, 49 out of the 50 Nifty stocks were trading in negative territory.
2. Decline in Foreign Capital Inflows
Foreign institutional investors (FIIs) have turned cautious in recent weeks. In May, they have been net sellers on several trading sessions, and the lack of robust inflows is weighing heavily on market sentiment. On May 26, foreign portfolio investors bought Indian equities worth just ₹135.98 crore—a weak number compared to the daily averages earlier this year.
The dwindling foreign investment is causing worry, especially in the absence of strong domestic institutional buying to cushion the fall.
3. Stretched Valuations Raise Concerns
Valuation discomfort is another red flag. The Nifty 50 is currently trading at a price-to-earnings (P/E) ratio of 22.6, which is higher than its one-year average of 22.15. Analysts point out that earnings upgrades have not kept pace with rising stock prices, making the market vulnerable to corrections.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted, “The market may remain in a consolidation phase. While mutual funds may step in to buy during dips, high valuations will lead to selling on any rally. A meaningful uptrend will require clear signs of earnings recovery, which is not immediately visible.”
4. Geopolitical Tensions Add to Volatility
Heightened geopolitical risks are further amplifying market jitters. Whether it’s global trade tensions or regional conflicts, investors are increasingly adopting a risk-off approach. Analysts say that the recent optimism in Indian equities may not fully account for potential disruptions arising from prolonged negotiations on tariffs and ongoing structural issues such as low wage growth.
Krishnan V R, Chief of Quantitative Research at Marcellus, told Mint, “Markets are pricing in earnings growth in FY26/27, but at current valuations, they don’t seem to be factoring in the risk of geopolitical instability or trade tensions with major global powers.”
5. Absence of Immediate Positive Triggers
Despite a positive medium- to long-term outlook supported by strong macroeconomic indicators, an expected above-normal monsoon, and increasing retail participation, the market currently lacks fresh short-term catalysts. In the absence of strong earnings, policy announcements, or major economic developments, sustaining the recent rally has become difficult.
While domestic investors remain hopeful, the near-term scenario appears challenging.
Market Outlook
Market experts believe the volatility could continue in the short term, especially as India inches closer to general election results and global economic uncertainties persist. Investors are advised to remain cautious, avoid impulsive decisions, and focus on long-term fundamentals.
