The military build-up in the Persian Gulf and a muddied US interest rate outlook dealt the biggest blow to Indian markets since the Union budget, with investors losing nearly ₹6.8 trillion on Thursday.
The benchmark Nifty plunged 1.4% to close at 25,454.35 while the Sensex shed 1.5% to 82,498.14. The broader market wasn’t spared either—the Nifty Midcap 100 slumped 1.6%, while the Nifty Smallcap 250 fell 1.2%. Among Nifty’s biggest laggards were IndiGo (-3.3%), UltraTech Cement (-2.9%), and Mahindra & Mahindra (-2.9%).
The Wall Street Journal reported that the US has gathered the biggest air power in West Asia since the 2003 invasion of Iraq. A strike on Iran could trigger a spike in global oil prices, as markets react to the prospect of Iran retaliating by blockading the Strait of Hormuz, a critical chokepoint for 21% of the world’s oil supply. Meanwhile, the US Fed made a near-unanimous decision to keep interest rates unchanged, minutes of the latest meeting showed, with policymakers striking a cautiously hawkish tone.
“The sugar high from tax cuts will fade eventually, and the jobs situation remains challenging; without meaningful job creation, a sustained revival in consumption might be hard to achieve,” said Saurabh Mukherjea, founder and chief investment officer of Marcellus Investment Managers.
While the India-US trade deal has lifted sentiment at the margins, the deal’s fine print will ultimately determine whether investor confidence gets a durable boost, he added. At the same time, markets will be closely tracking commentary from Kevin Warsh, the new Fed chair, for cues on the trajectory of interest rates, Mukherjea said.
On Thursday, foreign institutional investors (FIIs) were net sellers of ₹880.49 crore, while domestic institutional investors (DIIs) turned net sellers of ₹596.28 crore. However, broadly, domestic institutions have continued to pour money into the markets, even as foreign investors have continued to sell.
Sustaining above the key resistance zone remains a challenge for Nifty 50, and its ability to do so will likely determine the market’s direction in the near term, market participants said.
Sudeep Shah, head of technical and derivatives Research at SBI Securities, highlighted visible selling pressure and signs of fatigue at higher levels, with the Nifty 50 struggling to decisively breach the 25,850-25,900 zone. He sees 25,200-25,300 as a crucial support band, while 25,650-25,700 remains a formidable resistance.
“A sustained breakout above this ceiling could pave the way for further upside,” Shah said.
D.P. Singh, deputy managing director and joint chief executive officer of SBI Mutual Fund, said mutual funds are deploying money as per their mandate, which explains the steady domestic buying. However, meaningful fresh inflows are yet to pick up, he said, citing his interactions with distributors.
He noted that retail investors seem to be stepping back from pure equity strategies and gravitating toward hybrid offerings such as multi-asset allocation, balanced advantage and equity hybrid funds.
All sectors closed in the red on Thursday, with Nifty Realty leading the losses, tumbling 2.6%. It was followed by Nifty Media, down 2.2%, and Nifty Auto, which slipped 2.1%.
With major events and key overhangs now behind us, Shreyash Devalkar, Head – Equity, Axis Mutual Fund, believes Indian equities look increasingly appealing now, as the valuation premium over other emerging markets has narrowed meaningfully. He noted that large-caps offer relatively modest growth but trade at reasonable valuations, whereas mid- and small-caps have corrected but valuations are still not attractive.
According to SBI Securities’ Shah, the recent rally has lacked broad-based participation. While banking stocks have led the gains, large lenders such as ICICI Bank and HDFC Bank have struggled to clear key resistance levels. In contrast, mid-cap and PSU banks have shown relatively stronger momentum. At the same time, heavyweights like Reliance Industries and IT stocks have remained subdued, further capping overall market sentiment and limiting the index’s upside momentum, according to Shah.
Morgan Stanley is overweight on financials, consumer discretionary, and industrials, underweight on materials, energy, healthcare, and utilities, and holds an equal-weight position on the remaining sectors.
“FPIs have their largest OW (overweight) position in Financials and added fresh active positions during 4Q25. Industrials is now their largest underweight, contrasting with our view,” the foreign brokerage said in a 3 February report.
“Domestic institutions (DIIs) have their largest underweight in Financials, although their underweight position declined. Consumer Staples remains their largest overweight. Industrials, HealthCare, and Materials are the sectors where DIIs align with our view,” it said.
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