The Sensex and Nifty hit their record highs of 85,978.25 and 26,277.35 touched on September 27, 2024.
While India’s long-term growth story remains intact, a series of global and domestic challenges have weighed on investor sentiment. Experts say the correction should be seen more as a reset than a structural reversal, but multiple headwinds have combined to drag markets lower.
Here are sone key reasons behind the 6% fall in the Nifty
Trade Tensions and Sentiment Shock: According to Anirudh Garg, Partner and Fund Manager at INVasset PMS, the sharpest trigger came from India–US trade relations. “The current 5% correction is best read as a sentiment-led shakeout rather than a structural reversal,” he said.
Valuation Concerns: Vakil further flagged valuations as another challenge. Indian equities remain expensive compared to peers, with the MSCI India Index trading at a CY26E P/E of 20x versus 12.4x for MSCI Emerging Markets. “That reflects a 65% premium, which remains above the long-term average of 49%,” he explained. Though the premium has moderated from the 85% peak in December 2024, it continues to limit foreign appetite, especially when coupled with policy uncertainty.
Geopolitical and Policy Risks: Geopolitics has added another layer of volatility. Vakil noted that “geopolitical concerns with neighbours and trade tensions with the U.S., due to tariffs on select Indian goods and stalled trade negotiations, have created policy uncertainty.” These developments, alongside tariffs on Indian exports and visa restrictions, have forced global funds to reprice risk, keeping Indian valuations under pressure.
Outlook Ahead
Despite the 6 percent decline, most fund managers see this correction as a healthy reset rather than the start of a deeper downturn. Garg noted that “with sentiment adjusting and valuations cooling, the present drawdown looks more like a reset before the market can build the foundation for the next leg higher.” While challenges around trade, earnings, and global volatility remain, the downside is seen as capped, with the market using this phase to consolidate before aiming for new highs.