Sensex crashes 600 points, Nifty ends below 24,550; what drove the Indian stock market down?

Indian stock market suffered significant losses on Tuesday, June 3, tracking weak global cues and amid growing concerns over stretched valuations and foreign capital outflow.

The Sensex opened at 81,492.50 against its previous close of 81,373.75 and crashed nearly 800 points, or 1 per cent, to hit an intraday low of 80,575.09. On the other hand, the Nifty 50 opened at 24,786.30 against its previous close of 24,716.60 and crashed nearly 1 per cent to an intraday low of 24,502.15.

Finally, the Sensex closed 636 points, or 0.78 per cent, lower at 80,737.51, while the Nifty 50 settled at 24,542.50, down 174 points, or 0.70 per cent, extending losses to the third consecutive session.

The BSE Midcap and Smallcap indices ended 0.52 per cent and 0.07 per cent lower, respectively.

The overall market capitalisation of firms listed on the BSE dropped to nearly ₹443 lakh crore from ₹445.50 lakh crore in the previous session, making investors poorer by about ₹2.50 lakh crore in a single session.

According to Rupak De, Senior Technical Analyst at LKP Securities, investors are awaiting a decisive commentary on the RBI's interest rate decision.

"Very short-term support is placed at 24,500. A fall below this level may trigger an increase in short positions, potentially leading to a swift decline towards 24,000. On the other hand, if the Nifty holds above 24,500, it could see a recovery towards the 24,700–24,750 zone in the near term," said De.

Why is the Indian stock market falling today?

Experts highlight the following five reasons behind the stock market fall today:

1. Concerns over stretched valuation

Concerns are growing about the Indian stock market's overstretched valuation. The current price-to-earnings (PE) ratio of the Nifty 50 is above its one-year average PE.

"The concern in the market now is the high valuation, particularly in the broader market. But the trends in money flows into the market and the healthy trend of retail investors persisting with their investment for longer periods indicate that Indian equities will remain at higher valuations for an extended period of time," said VK Vijayakumar, Chief Investment Strategist, Geojit Investments.

2. Erratic US trade policy

Erratic US trade policy keeps investors cautious worldwide. Experts say the market believes there is no certainty around Trump's tariff policies, which will continue to fuel concerns.

While China has accused the US of violating their recent trade deal, US President Donald Trump is to speak with Chinese President Xi Jinping to address the simmering tensions between the two countries.

3. Foreign capital outflow

Signs of foreign capital inflow losing steam are weighing on market sentiment. Foreign portfolio investors (FPIs) have sold Indian equities worth about ₹9,000 crore in the cash segment in the last two sessions amid rising US bond yields and elevated valuations of Indian equities.

"The ongoing foreign fund outflows, coupled with weak global cues such as geopolitical tensions and uncertainty over trade deals, are adding pressure to the markets," said Ajit Mishra, SVP of research at Religare Broking.

4. Lack of fresh triggers

The domestic market lacks fresh positive triggers amid tepid Q4 results, stretched valuations and tariff-related uncertainty.

Experts say that the Q4FY25 results of India Inc. were largely stable, but they failed to boost market sentiment.

"The Q4FY25 earnings fared better than expectations. However, forward earnings revisions continue to exhibit weakness, with downgrades surpassing upgrades," said brokerage firm Motilal Oswal Financial Services.

India's growth outlook remains strong, but much of it appears to be already priced in by the market. All eyes are now on the RBI’s Monetary Policy Committee meeting on June 6. Experts anticipate a 25 basis point rate cut, but since it is largely expected, it may not provide a meaningful boost to market sentiment.

5. Fresh escalation in the Russia-Ukraine war

The Russia-Ukraine war has seen fresh escalation after Ukraine’s weekend attacks against military airfields deep inside Russia.

Ross Maxwell, Global Strategy Operations Lead, VT Markets, underscored that the war in Ukraine has been going for more than three years, with wide ranging impacts on the markets, reshaping inflation and energy policy to investment flows and risk sentiment.

"Three years on and the markets have settled. However, the impacts still remain, and with peace negotiations starting to take place, there is hope of some form of ceasefire; the markets will be keeping a close eye on what this means," Maxwell said.

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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions, as market conditions can change rapidly, and circumstances may vary.