Nifty 50 losing streak is driven by FII outflows, trade tensions, and economic slowdown
The Nifty 50 index entered new territory as it registered its longest losing streak in 2025 ever since its establishment in 1996. For the last decade of sessions, the index plunged by around 4%, which was driven by relentless foreign fund selling, the global trade wars, and economic uncertainty. The index closed at 22,082.65 on Friday, an important correction of its all-time high in September.
Key Reasons Behind the Nifty 50’s Decline
Foreign Institutional Investor (FII) Outflows
Foreign investors have been selling Indian stocks aggressively, with ₹1.12 lakh crore withdrawn in the first two months of 2025 alone. This large withdrawal has caused huge pressure on the markets, especially on the large-cap stocks that control the Nifty 50 index.
Rising Global Trade Tensions
The global economy is under pressure as the US has levied 25% tariffs on Canada and Mexico, and 20% tariffs on Chinese imports. China retaliated by announcing an increase in 10-15% import duty on US$21 billion worth of US agricultural and food items. The news has heightened concerns of an extended trade war, which affects investor sentiment negatively.
Economic Slowdown Indicators
India’s manufacturing PMI has fallen to a 14-month low, indicating slower economic growth. Deteriorating demand, reduced industrial production, and slow new orders have triggered fears about the future economic outlook for the country, prompting cautious market action.
Valuation Concerns
Before the downturn, the P/E ratio of the Nifty 50 had climbed to high levels, and investors were cautious about high valuations. The correction has now driven the PE ratio below 20, a level that has been traditionally seen at market bottoms. More selling pressure may continue if earnings reports do not meet expectations.
Sectoral Weakness
Major industries like IT, automobiles, and real estate have performed poorly, pulling the overall index down. The realty space has been specifically affected by the high interest rates, while IT companies are struggling with weakening global demand and weaker earnings guidance.
Sectors That Have Been Resilient in the Market Crash
While the overall weakness prevails, a couple of sectors have been able to stay resilient or even see gains:
Defense and Railways: Shares such as Hindustan Aeronautics Limited (HAL) and Bharat Electronics Limited (BEL) have done well with healthy defense sector winds. Railway stocks too have maintained themselves with solid demand and support from the government.
Banking and Financials: Private sector large banks like Kotak Mahindra Bank have been fairly stable, with good credit growth and improving asset quality. The Nifty Bank index has performed better than the general market, declining by a mere 2.51% during this bear phase.
Rural and Agriculture Stocks: Fertilizer and agrochemical firms have remained resilient, thanks to robust local demand and reduced raw material prices.
Hospitals and Healthcare: Healthcare stocks have delivered steady earnings, making them attractive for investors seeking defensive bets in volatile markets.
Implications of the Nifty 50’s PE Ratio Falling Below 20
The Nifty 50’s PE ratio dipping below 20 has several important implications:
Valuation Correction: Historically, a PE ratio below 20 has often signaled a market bottom, presenting potential buying opportunities for long-term investors.
Earnings Expectations: The analysts have anticipated high earnings growth in FY26, but in case of non-achievement by companies, more downside risks persist.
Global Uncertainty: Even though valuations look more moderate, external issues like trade wars and global economic slowdowns can postpone any genuine recovery.
Potential Signs of Market Bottoming
Technical Indicators: The Nifty is probing its 100-week moving average (WMA), a past support level that has acted as market bottoms in the past.
Fibonacci Retracement Levels: The index is at critical support levels of Rs. 21,800-22,000, which may cause a reversal.
Oversold Conditions: The Relative Strength Index (RSI) has gone into oversold levels, with previous corrections witnessing a bounce once RSI touches these levels.
Investor confidence is weak, and there are global uncertainties, so the recovery, if any, could be gradual and slow instead of a sharp one.
Conclusion
The Nifty 50’s longest losing streak since 1996 is being led by foreign investor outflows, global trade tensions, economic slowdown fears, and sectoral vulnerabilities. While some sectors are still holding up, overall market sentiment is bearish.
The index’s PE ratio falling below 20 signals a potential market bottom, but investors remain cautious due to lingering economic risks. Historically, markets have rebounded after corrections of this scale, but much will depend on global developments and domestic earnings performance in the coming months.
