Indian equity markets witnessed a severe selloff on Friday, with the Sensex plummeting over 1,000 points and erasing nearly Rs 5 lakh crore in investor wealth. The decline was fueled by concerns over a weak monsoon forecast, sustained foreign investor selling, and uncertainty surrounding a US-Iran peace deal.
Market Performance
The Sensex closed 1,092.26 points lower at 74,775.74, while the Nifty50 dropped 359 points to settle at 23,547.75. Market volatility surged, with India VIX rising around 9% to 16.35.
Top Losers and Gainers
Power Grid emerged as the biggest loser on the Sensex, falling more than 4%. IndiGo dropped over 3% ahead of its quarterly results, while Bajaj Finance, UltraTech Cement, Tata Steel, Sun Pharma, and NTPC declined more than 2% each. Tech Mahindra and HCLTech bucked the trend, gaining nearly 2%.
Key Reasons for the Stock Market Crash
IMD's Weak Monsoon Forecast Sparks Inflation Concerns
A key trigger for Friday's selloff was the India Meteorological Department's forecast of below-normal rainfall during the June-September monsoon season. M Ravichandran, secretary at the Ministry of Earth Sciences, announced that monsoon rainfall is likely to be 90% of the long-period average, marking the weakest outlook in 11 years. This has raised concerns about food inflation and rural demand, especially with El Niño conditions persisting.
Vinod Nair, Head of Research at Geojit Investments, said, "The market witnessed broad-based selling pressure following the IMD's monsoon forecasts, raising concerns among investors. The prospect of deficient rainfall, coupled with the increasing likelihood of an El Niño weather pattern, has heightened fears of elevated food inflation in the coming months."
US-Iran Peace Deal Remains Uncertain
Investors remained cautious amid uncertainty surrounding efforts to convert the current US-Iran ceasefire into a broader peace agreement. Reports suggest that Washington and Tehran have agreed to extend the ceasefire for 60 days, pending approval from US President Donald Trump. US Vice President JD Vance noted that negotiators were "very close" to a peace deal but still debating language points, including the "question of enrichment." The lack of clarity has kept geopolitical concerns alive in global markets.
Foreign Investors Continue to Sell Indian Equities
Persistent selling by foreign institutional investors also weighed on market sentiment. According to provisional NSE data, foreign investors sold Indian equities worth Rs 1,043 crore on Wednesday. FIIs have remained net sellers in 13 of the 18 trading sessions so far in May, adding pressure on domestic markets despite relatively strong corporate earnings.
Sectors Under Pressure
The weakness extended beyond frontline indices. The Nifty Smallcap 100 and Nifty Midcap 100 indices fell around 1% each. Among sectors, Nifty Oil & Gas declined around 2.5%, while Nifty Metal dropped more than 2%. Nifty IT was the only major sectoral index to end marginally higher.
What Next?
Despite the sharp correction, analysts pointed to encouraging earnings trends and easing oil prices. VK Vijayakumar of Geojit Investments said, "A positive trend from the market perspective is that Q4 results have been better-than-expected. The double-digit earnings growth in financials, automobiles, and metals is impressive. Trends indicate that FY27 will be good for defence, capital goods, renewable energy, financials, and pharmaceuticals. Growth sectors like digital platform companies are getting accumulated on declines."
Meanwhile, Brent crude futures fell nearly 2% to below $92 per barrel, while WTI crude futures declined around 2% to trade near $87 per barrel. The rupee also strengthened, rising 53 paise to close at 95.05 against the US dollar from 95.69 in the previous session. According to a Reuters report citing traders, the Reserve Bank of India likely intervened in the foreign exchange market ahead of Friday's opening to support the domestic currency.
