Sensex senses existential crisis

Over the past five trading sessions, the Sensex, Bombay Stock Exchange index, lost more than 2,000 points. This comes after a positive ending in 2025, when it climbed in the last three months (October-December), and gave a healthy 10 per cent returns despite the flatness and volatility during the year. Analysts have scrambled to explain the recent fall, although their assessments seem to be based on lack of investment interest, rather than on selling pressures. A more in-depth and insightful analysis indicates that the Indian indices face an existential crisis. They are unsure about themselves since the so-called positive factors have a ring of negativity around them. The Sensex, like the Nifty, is unsure of the ground on which it stands. It is apprehensive about the factors that do, and will, impact it, and how and why. Let us examine the six factors that seem important, and their real ramifications:

Order-Disorder: By the time the readers absorb this article, the US Supreme Court is likely to deliver a verdict on whether the American tariffs on other nations are constitutional. It can mean a huge victory for President Donald Trump, or a huge defeat. Experts contend that investors are waiting for the judgment. The truth, however, is that the court’s decision will not matter. Either way, the president will go ahead with his trade-tariff-investment policies. If he wins, he will be unstoppable, given the positive news on the GDP growth, and trade deficit fronts (See the anchor piece on this page). If he loses, he will find other options to continue with the actions. At present, Trump feels that he is on top because his policies seem to work. He will not easily back off. Legal experts feel that he has several other aces up his sleeves, and can still go ahead with the tariffs.

Bilateral-Collateral: Investors are frustrated with the protracted delays in the India-US bilateral trade deal. It was expected in the autumn of 2025, and now Indian officials feel that it may be inked by March 2026. Any further delays will worry the Indian equities, and pull down the indices. In addition, media reports related to the other free trade deals that India has signed in the recent past do not lead to confidence. For example, the India-New Zealand one may lead to higher imports, even as India struggles to boost its exports. Cheaper imports may impact the local industries, and farm sector. Several segments have begun to feel the heat. Hence, even if the India-US deal happens within the next few weeks, the US will aim to browbeat the Indian negotiators, and hope to increase its exports. As Trump has repeatedly said, his objective is to move from trade deficits with nations to surpluses. The recent October 2025 data shows that American exports have gone up, and imports are down.

Investor vs Investor: Over most of 2025, the narrative that was built to explain the resilience of the Indian stock markets was simple. The foreigners were net sellers for most of the months, but domestic retail investors pumped in huge amounts, especially via mutual funds, to ensure that there was enough buying pressure to negate the selling one. Hence, although the indices were volatile, they did not go into a free fall. In 2026, the foreigners continued to sell. The indications from the local retail investors seem iffy, and gets into the realm of maybe. Recent reports indicate that they have begun to sell in the secondary market to free funds to subscribe to IPOs (Initial Public Offerings), where they see better, higher, and immediate returns. Figures for December 2025 show that the net assets under management of the mutual funds were down from Rs 80.8 trillion to just over Rs 80.2 trillion. According to Venkat Chalasani, chief executive, Association of Mutual funds in India, the latest trend was “primarily driven by debt fund outflows for liquidity management, and limited market-related valuation changes.”

IPO-Mayhem: Last year was one of the best years for IPOs, as both start-ups and established firms, as well as new-age firms and traditional ones, raised record amounts. Towards the end of the year, investors, though choosy, queued up to participate in the new issues to benefit from listing gains. In most cases, the selling pressures began within a week or two of the listing dates. In essence, the shareholders sought short-term, and immediate gains, rather than hold the shares. Maybe there was a lack of belief in the stability of the firms’ future performances. In addition, some of the pre-IPO institutional investors, who have a short lock-in period, sold as soon as they could to cash out. Analysis showed that a large portion of the proceeds were not aimed to benefit the firms that raised the money, but to line the pockets of the founders, and original investors, who sought lucrative exit options to profit from the IPOs.

Macro-Minor: In the recent past, some of India’s macro figures were astounding. The GDP grew by an unbelievable right per cent in the first half of the ongoing fiscal year despite the geopolitical disruptions, and other headwinds. Inflation was low. Yet, worrisome signals emerged. The rupee capitulated, and breached INR 90 against the dollar. The monthly data for industrial production was wayward, either high or low. The managers’ indices for manufacturing and services, though robust, were low. Although experts indicate that the GDP is likely to grow at 7.4-7.5 per cent annually in 2025-26, it implies slower, and lower growth in the second half. In the investors’ minds, this implies a negative effect on corporate earnings, which were expected to go up in 2026. Hence, people are waiting for the third quarter financials of Indian firms, which will be announced soon. But this does not explain the selling pressures unless there is a section that believes that bad news is around the corner.

Unreliable Reliance: A few firms have pulled down the Indian indices. Reliance Industries is a prime example. In the past five trading sessions, the stock is down more than eight per cent, and witnessed a huge fall when the market opened on January 6. The main reason was the firm’s denial that it would import Russian crude oil in January. Although this was a positive trend, as Trump had declared that he would impose 500 per cent tariffs on nations that still buy from Russia, it had a negative impact on investors. The stockholders realised that lower purchases of Russian crude may have a negative effect on the firm’s refining margins.