Stock Market Downturn: Why Nifty, Sensex Fell 15% & Its Impact on Investors

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What’s in Today’s Article?

The 15% drop in Nifty and Sensex over five months may not be unusual, but its impact is significant due to the growing and widespread investor base across the country.

The Nifty and Sensex have dropped around 15% in the last five months, which, while not extraordinary in scale, has deeply affected investors due to the rapid expansion of the equity culture across India.

The Budget on February 1 introduced significant tax cuts, raising the rebate income limit from ₹7 lakh to ₹12 lakh, benefiting 1.75 crore taxpayers at a revenue cost of ₹1 lakh crore.
However, the expected boost to market sentiment and consumption has faded within four weeks, as benchmark indices have dropped over 5%, dampening investor confidence.

Over the past decade, equity investments have spread beyond metros to Tier-II and smaller towns, driven largely by mutual funds.
Investor registrations on the NSE have surged fivefold to 22 crore by February 2025, with a substantial portion of MF investments coming from smaller cities.

For newer investors who entered after the pandemic, this sustained decline is unprecedented.
With stagnant income growth, stock and MF gains were their primary wealth drivers, making the recent market downturn a significant blow to overall sentiment.

Impact of Trump’s Tariffs
- US President Donald Trump announced new tariffs on Mexico, Canada, and China, fueling uncertainty in global markets.
- The additional 10% tariff on Chinese goods, set to take effect on March 4, heightened fears of a prolonged trade conflict, contributing to market volatility.
Across-the-Board Selling Pressure
- Heavy selling in mid- and small-cap stocks intensified market weakness.
- The Nifty SmallCap index fell 2.09%, while the Nifty MidCap index declined 1.89%.
- Sectors like Metal, Realty, Auto, and Media witnessed losses of up to 2.5%.
Persistent FII Selling
- Foreign Institutional Investors (FIIs) continued their selling spree, offloading stocks worth Rs 556.56 crore on February 27.
- FIIs have sold a total of Rs 1,13,721 crore so far in 2025, significantly pressuring the Indian stock market.
Weak Global Cues
- Global markets reacted negatively to Trump’s tariff decisions. The Nikkei fell 2.81%, Kospi dropped 2.74%, and CSI 300 was down 0.6%.

Rise of Investments Beyond Major Cities
- Equity investments have expanded significantly beyond India’s top 110 cities.
- In March 2014, assets under management (AUM) from smaller cities stood at ₹23,624 crore (2.61% of total AUM).
- By December 2024, this surged to ₹12.9 lakh crore (18.6% of total AUM), with nearly one in five rupees invested now coming from these regions.
Demat Accounts Surge, Indicating Widespread Participation
- The number of demat accounts grew nearly fivefold from 4.1 crore in March 2020 to 18.8 crore by January 2025, reflecting a broader investor base.
- What was once an asset class for affluent, experienced investors is now a mass product, with more households directly exposed to equity markets.
Upcoming Elections in Key Growth States
- With Uttar Pradesh and Bihar set for elections in the next 24 months, the growing retail investor base in these regions could have economic and political implications, especially in light of market fluctuations.

Short-Term Investors Feel the Heat
- While mutual fund investors are relatively insulated due to their long-term approach, those engaged in direct stock trading, especially in futures and options, are more vulnerable.
- Many short-term investors have not experienced a significant downturn before and may struggle to navigate the slump.
Impact on Spending and Consumption
- If the market continues to decline or remains weak for an extended period, it could negatively affect spending habits.
- A drop in net worth weakens investor sentiment, reducing their capacity and willingness to spend, which in turn may impact overall consumption in the economy.
Mid & Small Cap Investors at Higher Risk
- The market downturn is likely to hit mid and small-cap stocks harder, disproportionately affecting smaller investors who have a higher share of their portfolios in these segments.
- In contrast, affluent investors, with more diversified and long-term portfolios, are better positioned to withstand the volatility.