Why is the Share Market Down

Stock markets crash as global trade tensions rise. Donald Trump's new tariffs, fear of trade wars, and growing uncertainty lead to panic selling across world markets.
OPEN ACCOUNT
Why is the Share Market Down
OPEN ACCOUNT
3 min
16-June-2025

A stock market crash happens when share prices drop suddenly due to global issues, financial instability, or investor panic. It can be triggered by economic crises, major events, or bursting market bubbles. Fear-driven selling makes things worse, dragging down indices like BSE Sensex and NSE Nifty. Knowing these reasons helps investors stay prepared and protect their money.

Why did the share market crash today?

The Indian stock market experienced a significant downturn today, and the following five key factors appear to be responsible:

1. Concerns over stretched valuation

The Indian stock market is witnessing concerns around overstretched valuations, particularly due to the Nifty 50’s elevated PE ratio. Despite this, steady inflows and long-term retail participation suggest continued optimism. Analysts believe high valuations may persist, supported by investor confidence and consistent domestic equity inflows.

2. Erratic US trade policy

Uncertainty surrounding US trade policies, especially under former President Trump, continues to unsettle global markets. The US-China trade tensions have intensified, with allegations of deal violations. With high-level talks expected, investors remain wary of policy unpredictability and its potential ripple effects across emerging and developed markets.

3. Foreign capital outflow

Recent foreign investor sell-offs have weighed heavily on Indian equities. Over ₹9,000 crore was withdrawn in just two sessions, triggered by rising US bond yields and expensive valuations. Analysts attribute additional pressure to weak global cues, including geopolitical instability and trade deal ambiguities that dampen investor confidence.

4. Lack of fresh triggers

Indian markets are struggling to find fresh catalysts as Q4FY25 earnings remain largely unremarkable. Despite beating expectations, forward earnings revisions remain subdued. With much of the positive growth outlook already priced in, even anticipated policy moves, like a potential rate cut by the RBI, may not lift sentiment.

5. Fresh escalation in the Russia-Ukraine war

The Russia-Ukraine conflict has intensified following Ukraine’s targeted strikes. While markets had adjusted over the past three years, renewed aggression revives uncertainty. Strategic experts note that any developments toward ceasefire talks could influence global risk sentiment, investment flows, and inflation, making it a critical issue for investors to track.

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Causes of a stock market crash

Stock prices are subject to complex factors that collectively influence the market dynamics of supply and demand. To address the pertinent query of “Why is the Indian stock market falling today?”, let us delve into these influencing elements.

1. Excessive leverage

Leverage, or the use of borrowed funds to invest, is a double-edged sword in the Indian stock market. It can magnify profits during bullish phases but proves perilous in bear markets. For instance, an investor in India borrowing Rs. 5,00,000 to purchase stocks worth Rs. 10,00,000 might see substantial gains if stock prices rise. However, during a downturn, even a 50% drop in share prices could result in a complete erosion of their equity, forcing them to sell assets to cover losses. The cascading effect of such forced selling often drags market indices lower, creating a negative feedback loop.

2. Rates of inflation and interest

In India, inflation directly influences the Reserve Bank of India’s (RBI) monetary policy. Rising inflation prompts the RBI to increase interest rates, leading to higher borrowing costs for companies and individuals. For example, an increase in home loan rates dampens real estate demand, which in turn impacts the stock prices of realty companies. Additionally, high inflation reduces consumer spending power, adversely affecting sectors like FMCG and automobiles. As a result, investors may lose confidence, leading to a broad market decline.

3. Political environment and policy uncertainty

Political events, such as general elections or sudden changes in government policies, play a significant role in determining stock market stability in India. Markets thrive on predictability, but events like unexpected reforms or geopolitical tensions can unsettle investors. For example, the announcement of demonetisation in 2016 or uncertainties surrounding tax regulations like GST implementation initially caused market turbulence. Similarly, border tensions or a weak coalition government can reduce foreign direct investment (FDI) inflows, dampening stock market performance.

4. Tax policy changes

The Indian stock market is sensitive to tax-related changes that affect investor returns and corporate profitability. For instance, the introduction of the Long-Term Capital Gains (LTCG) tax in 2018 initially dampened investor sentiment. Sudden changes in corporate tax rates or dividend taxation can also lead to volatility, as these policies directly impact corporate earnings and investor yields. Adjustments in Goods and Services Tax (GST) rates on key sectors often ripple through the stock market, influencing overall investor confidence.

A company’s fiscal well-being and ability to generate profits play a prominent role in whether the share market goes up or down. In addition, the broader economic landscape has a considerable impact on investor sentiment. Metrics like Gross Domestic Product (GDP) growth, unemployment rates, and inflation can influence the market’s mood. Alterations in interest rates directly affect borrowing costs for both companies and individuals. Also, the impact of company-specific events cannot be avoided. Announcements regarding product launches, mergers, acquisitions, shifts in management, or legal entanglements hold the potential to considerably impact a company’s stock price. Besides these, the global stage, rife with geopolitical events, international conflicts, and macroeconomic trends, introduces another element of unpredictability.

What should you do when the share market is down?

It’s essential to approach the share market's decline with a calm and strategic mindset. Here are some steps to consider.

1. Stay calm and avoid emotional reactions

When the market goes down, the typical reaction of an investor is to panic and think about selling their position. With the market filled with anxiety, it is a normal reaction to not want to accumulate more losses. Feeling uneasy during market downturns is natural, but making impulsive decisions based on fear or panic can lead to greater losses. During such times, the best strategy is to hold your position. Even though a stock may be in a loss-making position, it will recover eventually. Avoid making emotional reactions like selling off all your investments hastily. Market crashes usually will not last more than a few days, and you may be able to recover your investment in a few months if you successfully exercise patience and hold your position.

2. Review your portfolio

 Look closely at your investment portfolio. Assess the sectors and individual stocks that are most affected by the downturn. Consider whether your initial investment thesis still holds true or if any adjustments are needed.

3. Diversification matters

A well-diversified portfolio is less susceptible to extreme price changes from the share market going down. Ensure your investments are spread across different sectors, industries, and asset classes to mitigate risk. Even when a stock market crashes, there is a small chance that all sectors will be equally affected. If your portfolio is diverse, with assets spread across different classes and sectors, it will help mitigate the risk of the price crash more effectively. This, in turn, may help you remain calm and ride through the volatility.

4. Focus on the long term

Remember that investing is a long-term endeavour. Market downturns are often temporary, and history has shown that markets tend to recover over time. Stay focused on your long-term financial goals rather than short-term fluctuations. One of the key traits of successful traders is that they remain invested even when markets fall and patiently wait for recovery to book profits.

5. Rebalance if necessary

A market downturn might cause your asset allocation to drift from your intended targets. Constantly monitoring the market is important to understand how to modify your portfolio according to price fluctuations. Consider rebalancing your portfolio by selling some of the investments that have performed well and allocating funds to those that have declined. This will help stabilise the impact of the stock market crash and help you calmly assess opportunities for market re-entry.

6. Buy more shares

While it may seem like contrary advice to everything we have discussed, if you get the timing of your market entry right, it can lead to big profits. As prices in the overall stock market decline, shares of companies that are highly valued can also fall. This presents a unique buying opportunity and can enable you to purchase more shares. A popular strategy is to buy shares regularly instead of all in one go as a price reversal is uncertain. Ideally, you should pick companies that have historically had strong fundamentals and financials as they have a higher probability of recovering quickly.

Interaction of bull market, bear market, and stock market bubble

In the context of the Indian securities market, the interplay between bull markets, bear markets, and stock market bubbles significantly impacts market dynamics and investor behaviour, particularly during periods of economic uncertainty.

1. Bull market

A bull market is characterised by rising share prices, driven by investor confidence and optimism about the economy. During a bull market, demand for stocks surpasses supply, pushing prices upward. This phase can last between 2 to 9 years. However, all it takes is a significant market event or economic indicator to spark a crisis of confidence. When this happens, the previously buoyant market sentiment can quickly reverse, leading to a surge in selling activity.

2. Bear market

A bear market often follows a stock market crash. In this phase, investor sentiment turns pessimistic, leading to widespread selling of shares as supply exceeds demand. A market is considered to be in a bear phase when it declines by 20% or more within a year. Bear markets usually last for less than four years but can cause significant economic stress and loss of investor wealth.

3. Stock market bubble

A stock market bubble occurs when stock prices are driven to unsustainable levels due to rampant speculation and a herd mentality among investors. During a bubble, market values become significantly inflated, detached from the underlying economic fundamentals. When the bubble bursts, it results in a sharp and often rapid decline in stock prices, contributing to a market crash.

Most significant stock market crashes in India

We often wonder, “Why is the market down today?” Every investor must understand the historical context, including some of the most significant market declines that have shaped the trajectory of our financial landscape.

In 1992, India’s stock market crashed due to broker Harshad Mehta’s securities scam involving stock price manipulation. This led to a 12.77% BSE surge, followed by a decline. In 2004, UBS’s selling orders for undisclosed clients caused an 842-point drop, as revealed by a SEBI investigation.

In 2007, the brutal crash saw SENSEX plunge, including a 617-point drop on April 2nd and a 615-point fall on August 1st – among the third-largest losses. 2008’s global recession led to a 1408-point BSE fall, including a 1,070-point crash on October 24th.

From 2015–2016, SENSEX dropped 854 points on January 6th and 1,624 points on August 24th due to economic slowdowns in India and China. Factors like rising NPAs and demonetisation caused more crashes.

2019 witnessed a 400-point SENSEX dip and a 10,850-point NIFTY crash due to the US Federal Reserve’s actions, economic slowdown signs, and disappointing earnings. This caused significant investor wealth losses.

The 2020 COVID-19 pandemic caused a notable stock market crash. Lockdowns and uncertainty led to a sharp decline in India’s markets. Resilient investors focusing on investment fundamentals eventually benefited from the market’s resurgence.

Conclusion

If you’re wondering why the share market is going down, you must remember that stock market crashes can stem from a complex interplay of factors. These include market manipulation, economic downturns, global events, unexpected policy shifts, and investor sentiment. The history of stock market crashes illustrates how vulnerabilities in financial systems, coupled with external shocks, can lead to sharp declines. Recognising these factors and their potential impact is crucial for investors, regulators, and policymakers to mitigate risks and promote stable market conditions.

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Frequently asked questions

Why is there decline in share market?

A stock market decline often results from a mix of economic and geopolitical concerns. Factors such as rising inflation, higher interest rates, weak corporate earnings, or political unrest can impact investor sentiment. These triggers lead to uncertainty, prompting investors to sell off holdings, which drives markets downward.

Why are Indian markets falling?

Indian markets are under pressure due to escalating Middle East tensions, cautious investor behaviour, and SEBI’s recent tightening of rules on retail derivatives trading. The Nifty 50 index recently fell by 2.2%, with broader indices like mid- and small-caps also posting significant losses, reflecting widespread investor unease.

Why is FII selling in the Indian market?

Foreign Institutional Investors (FIIs) are offloading their positions amid global volatility, higher US bond yields, and concerns over rich valuations in Indian equities. While this selling adds pressure to the market, it also presents potential buying opportunities in fundamentally strong stocks at relatively lower prices.

Who controls stock prices?

Stock prices are not controlled by any single entity. They are determined by market forces—specifically, the balance between demand and supply. When more people want to buy a stock than sell it, the price rises, and vice versa.

What makes the market go down?

When demand for a stock exceeds supply, its price rises; when supply surpasses demand, the price falls. Factors like company earnings, economic data, and investor sentiment influence the supply and demand dynamics, impacting market movements. Understanding these factors is crucial for predicting market fluctuations and making informed investment decisions.

What is the reason for the downtrend in the stock market?

A downtrend occurs in the stock market when a significant number of traders exit the market around the same time. Understanding the importance of market sentiments is important, as even the speculation of a decline can cause selloffs and further decline.

What happens if the stock market crashes?

A stock market crash can lead to a bear market, where indices fall sharply typically by 20% or more. Such a downturn can hurt investor sentiment, reduce business confidence, and in extreme cases, contribute to an economic recession as companies may struggle to raise capital and face financial distress.

Should we buy stock during a market crash?

During a market crash, it’s important not to panic. Continuing Systematic Investment Plans (SIPs), reviewing and diversifying your portfolio, and investing in high-quality stocks at reduced prices can be sound strategies. Traders, however, should remain disciplined, avoid overtrading, and focus on preserving capital.

What causes a stock market crash?

Stock market crashes are often triggered by major global events, economic crises, or the bursting of speculative bubbles. Additionally, widespread investor panic and herd behaviour can accelerate selling pressure, causing prices to plummet further.

Can I profit from a market crash?

Yes, it is possible to profit during a market downturn by adopting suitable strategies. Investing in dividend-paying stocks, diversifying your portfolio, and adjusting your investment approach based on prevailing conditions can help you take advantage of the opportunities a crash may present.

Why does the market price fall?

Stock prices decline when the supply of shares surpasses demand. If more investors are selling than buying, sellers may lower their prices to attract buyers, leading to a drop in stock value. Conversely, when demand exceeds supply, prices tend to rise.

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