Indian economy is still strong

After posting an all-time gain in the current financial year, the market began to fall due to massive selling by foreign institutional investors (FIIs). The dull second half of the year, however, spoke of the hope that the Indian economy holds.

The Union budget for the financial year 2025-26 did not inspire the already weak capital market, nor did the analysts anticipate any relief from the ongoing bear phase fuelled by massive selling that foreign institution investors (FII) resorted to. Investors have been caught in the devil and deep sea with no comfortable room for exit. An exit at a heavy loss could be unthinkable for many investors who have already lost heavily in the earlier onths. At the same time, holding on to the position means moving on a sinking ship. They are confused about exit and re-entry as the market movement is unpredictable, even for the most brilliant analysts. Big traders and high net-worth investors got out of their positions due to the margin calls after a long streak of heavy falls.   

The tax relief for the middle class should have boosted the market sentiment since it will trigger consumption growth to the extent of ₹100,000 crore savings by the taxpayers. Still, the market resumed the bearish sentiment in the following days owing to the massive sales by FIIs, who have sold equities worth nearly $10 billion already this year. Their heavy sales in emerging markets like India helped the dollar index soar significantly.

Everything on the home front is good, except for the capital market sentiment. Investors drew fear from the global markets after Donald Trump threatened China, Mexico and Canada with higher import tariffs. Nevertheless, on 4th February, he agreed to hold off imposing 25 per cent tariffs on Canada and Mexico for 30 days, though his China approach continued to be tougher. The announcement temporarily ended trade wars with its two neighbours. In return, Canadian Prime Minister Justin Trudeau agreed to reinforce the Canadian border with the US to clamp down on migration and stop the movement of the deadly drug fentanyl. Similarly, Mexican President Claudia Sheinbaum also agreed to reinforce the northern border with Mexican troops, and the US would curtail the flow of guns into Mexico.

This announcement temporarily triggered the bulls in the Indian capital market. On 5th February, the BSE 30 Share Sensitive Index (Sensex) surged to 1400 points to close at 75,584, and the NSE 50 share Index (Nifty) closed 378 points higher at 23,739. All the sectors turned green after many days of a selling spree. However, the bullish sentiment did not remain. The next day, the market reversed all the gains. The market recorded a significant dip on 11th February as a continuation of a five-day bearish streak. On Tuesday, the Sensex fell 1018 points, wiping out the value of ₹ 9.3 trillion to settle at ₹409 trillion. Nifty lost 310 points. Banks, which are otherwise strong with lower non-performing assets and better profit margins fell heavily, taking the big private banks leading the bearish rally. Within four trading sessions as of that date, Sensex lost a staggering 2.91 per cent and wiped out investors’ wealth of ₹19 trillion.  Incidentally, the Indian rupee posted a gain of 0.74 per cent on that day following the Reserve Bank’s intervention.

The US tariff of 10 per cent on Chinese imports has already been enacted. Days later, Trump signed executive orders imposing a 25 per cent tariff on imported steel and aluminium to make America ‘great’ again. The free-market advocate that the US was once is now acting tough to defend its industries out of its fear of crippling competition. Many of its industries are losing to China, a major rival of the US in the global market. The US tariff game created shock waves across the Indian market, and metal stocks continued their steep fall.

Though the capital market refuses to respond to the story of India’s strong economic fundamentals, the Indian economy is on its course to meet the fiscal target. The 25 basis point rate cut announced by the Reserve Bank will make debt cheaper, helping the borrowers save extra from their interest burden. Commercial banks have started cutting rates. “Planned cuts to personal income tax rates will bolster middle-class spending power and consumption, which is credit positive for many corporates and the financial sectors, the rating agency,” Moody’s said.