Why is the stock market falling? Trump’s Tariffs among 5 factors behind 500-point Sensex fall, Nifty dips below 24,500

Indian stocks tumbled on Friday, with the benchmarks set for their sixth consecutive weekly loss, as a confluence of global and domestic headwinds, from U.S. President Donald Trump’s abrupt doubling of tariffs on Indian exports to persistent foreign investor outflows and subdued Q1 earnings, weakened investor sentiment.

BSE Sensex tumbled 500 points, to trade below 80,200, while the NSE Nifty shed over 150 points to trade below the 24,500 level.

Here are five key factors driving today’s decline:

1. Trump’s 50% tariffs

Export-oriented sectors bore the brunt of the sell-off following U.S. President Trump’s decision to raise tariffs on Indian exports to 50%, a retaliatory move over India’s continued oil trade with Russia. It marks one of the steepest tariff hikes ever imposed on a U.S. trading partner and rattled investor confidence across multiple sectors.
“The escalation from 25% to 50% tariffs will create sector-specific pressures rather than broad market disruption for Indian equities. The Nifty 50’s limited 9% direct exposure to the U.S., primarily concentrated in IT services which remain exempt from goods-based duties, provides substantial insulation,” said Nitant Darekar, Research Analyst at Bonanza.

Still, Darekar flagged pressure on gems, jewellery, apparel, textiles, and chemicals—sectors representing a vulnerable Rs 8,000 crore export segment.“The most-impacted sectors are textiles (Gokaldas/Kitex), Chemicals (Camlin, Aarti and Atul), and Auto Ancs (BHFC/Suprajit/Sona BLW), with direct export exposure to the US,” said Seshadri Sen of Emkay Global.Morgan Stanley warned that the Indian seafood export industry alone “faces a potential loss of Rs 24,000 crore due to the U.S. doubling tariffs to 50%. This move puts India at a significant disadvantage compared to competitors like Ecuador, impacting exporters and potentially farmers.”

“Indian textile and apparel exporters are halting US order manufacturing due to President Trump’s tariff doubling to 50%, severely impacting their competitiveness against nations like Bangladesh and Vietnam,” Morgan Stanley said, forecasting “export decline, job losses, and overall uncertainty in the sector.”

Beneath the surface, exporters across textiles, seafood, gems and jewellery, chemicals and auto ancillaries are grappling with halted orders and evaporating margins, setting the stage for possible second-order effects if the tariff regime persists.

2) FII selling continues

Adding to the downward pressure, Foreign Institutional Investors (FIIs) remained in selling mode for the tenth straight session. On August 7 alone, they pulled Rs 4,997.19 crore out of Indian equities, with total August outflows now exceeding Rs 15,950 crore.

The $4 billion exodus since July signals deeper unease. Global investors appear to be repositioning in response to a shifting risk-reward profile, one now complicated by President Trump’s tariff escalation. While domestic sentiment has yet to fully price in the damage, FIIs are already acting on it.

“FIIs have sold on all trading days of August, so far,” said Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services. “These weak indicators, along with the relatively high valuations in India, are triggering sustained selling by the FIIs.”

In Vijayakumar’s view, the market remains both technically and fundamentally weak. “There are no indications yet of a sharp uptick in earnings for FY26,” he said.

“In the present context of negative sentiments in the market caused by the tariff skirmishes between India and the U.S., FIIs are likely to continue selling in the cash market,” he added. However, Vijayakumar noted that “the only saving grace is the sustained DII buying which remains strong. The strong DII buying assisted by sustained flows into mutual funds can prevent a crash in the market.”

3. Q1 earnings offer little cover

Corporate results have failed to offer support in the face of growing global stress. The Nifty IT index has lost 10% over the past month, and Nifty Bank has shown little momentum.

An Economic Times analysis showed India’s top nine private banks posted just 2.7% year-on-year profit growth in Q1, reflecting weak credit appetite and sluggish macro momentum.

“Domestic equity market navigated a volatile week marked by heightened uncertainty surrounding trade negotiations and subdued earnings,” said Vinod Nair, Head of Research at Geojit Investments.

4. Dollar surge compounds pain

The U.S. dollar index rallied 2.5% last week to breach the 100 mark, its sharpest weekly gain in nearly three years, raising the cost of foreign debt and intensifying capital outflows from emerging markets.

The index was trading at 98.188 on Friday, up 0.2%, as strength in the greenback continued to weigh on EM currencies and equity flows alike.

5. Technicals signal fragile support

Despite the weakness, some technical indicators point to potential short-term support. “With 88% of Nifty 500 stocks bouncing at least 1% off the day’s lows, a broad based recovery is in sight,” said Anand James, Chief Market Strategist at Geojit Financial Services.

“The Nifty pausing not far from the key pivot of 24,590 is a sign of a measured upside move, which has the potential to evolve into a stronger push,” he said.

“But, we will begin with a limited upside view of 24670–717, with an intention to play larger upside aiming 24850–25000. Downside marker may be placed near 24548,” James said.

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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)