The Indian stock market witnessed strong volatility on Wednesday, January 21, as the key indices swung between gains and losses, but remained in the negative territory for the third consecutive session. 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.
However, both indices erased losses and traded with decent gains at one point during the session.
Later, the indices succumbed to selling pressure again. The Sensex closed 271 points, or 0.33%, lower at 81,909.63, while the Nifty 50 closed the day at 25,157.50, down 75 points, or 0.30%.
The BSE Midcap and Smallcap indices declined by 1% each.
The volatility index, India VIX, jumped by over 8% on Wednesday.
The Sensex has crashed 1,661 points, or 2%, while the Nifty 50, too, has plunged 2% over the last three days.
In just three consecutive sessions, investors have lost about ₹14 lakh crore as the overall market capitalisation of BSE-listed firms has dropped to below ₹454 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 Reuters, the rupee fell for the sixth straight session, slipping to an all-time low of 91.7425 against the dollar.
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.
“Rupee traded weak as rising geopolitical tensions involving Europe and Greenland, along with fresh concerns over US tariff actions and the lack of a confirmed India–US trade deal, continued to weigh on sentiment. A sharp rally in bullion prices has further pressured the rupee by inflating the import bill. The currency is likely to remain volatile in a broad range of 90.90–92.00 in the near term,” said Jateen Trivedi, VP Research Analyst – Commodity and Currency, LKP Securities.
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
According to Sudeep Shah, Head – Technical and Derivatives Research at SBI Securities, the Nifty 50 is likely to find support at 24,950-24,900.
“Any sustained move below the 25,900 level could lead to the index extending its weakness further down towards the 25,700 level, followed by 25,500. On the upside, the zone of 25,300-25,350 will act as an immediate support,” said Shah.
Nilesh Jain, Head – Technical and Derivatives Research Analyst (Equity Research), at Centrum Broking, pointed out that the Nifty closed above its critical 200-day moving average.
“The broader trend remains weak as long as the Nifty trades below its 100-DMA at the 25,580 level. Key immediate supports are positioned at 25,120 and subsequently at 25,000,” said Jain.
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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.
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