Markets plunge as global trade war fears rattle investors

Indian stock markets suffered a sharp selloff on Friday, 28 February with the Sensex and Nifty tumbling nearly 2 per cent as concerns over a global trade war and a slowing US economy triggered a broad-based decline. Investors saw Rs 8.8 lakh crore wiped off in market capitalisation, with all 13 major sectoral indices trading deep in the red.

The BSE smallcap and midcap indices faced significant pressure, sliding more than 2 per cent each, while IT and financial stocks, which have a high proportion of foreign investment, accounted for half of Nifty 50’s losses.

The selloff came in the wake of US President Donald Trump’s 27 February announcement that his administration would impose a 25 per cent tariff on Mexican and Canadian goods starting 4 March.

Additionally, an extra 10 per cent duty on Chinese imports was introduced, adding to the 10 per cent levy imposed earlier this month, effectively raising the total tariff on Chinese goods to 20 per cent. Trump justified the move by citing the continued influx of illicit drugs into the US.

By market close, the Sensex had plummeted 1,420 points, or 1.9 per cent, to settle at 73,192, while the Nifty shed 418 points or 1.9 per cent, closing at 22,126. Market breadth on the NSE was overwhelmingly negative, with 2,221 stocks declining compared to just 400 advancing. The latest decline marked the fifth consecutive month of losses for the benchmark indices, the longest losing streak in nearly three decades.

Several factors have weighed on Indian equities, including concerns over slowing economic growth, weakening earnings momentum, Trump’s aggressive trade policies, and relentless foreign investor selling. Since September highs, benchmark indices have corrected by 18 per cent.

“While the tariff announcements have fuelled market uncertainty, Indian equities were already seeing a correction owing to rich valuations, especially in the midcap and smallcap segments,” Kunal Rambhia, fund manager & trading strategist at The Streets said.

V.K. Vijayakumar, chief investment strategist at Geojit Financial Services, highlighted that markets dislike uncertainty, and Trump’s presidency has brought continued volatility. “The tariff threats indicate his strategy of using economic pressure to negotiate more favourable trade terms for the US. However, a full-blown US-China trade war remains unlikely,” he added.

Vijayakumar expects a market recovery in March, supported by improving macroeconomic indicators and easing foreign institutional investor (FII) outflows.

So far in February, FIIs have sold Indian equities worth Rs 47,349 crore, while domestic institutional investors (DIIs) have made net purchases totalling Rs 52,544 crore.

Sectorally, IT stocks bore the brunt of the selloff, with the index plunging over 4 per cent after US jobless claims data raised concerns of an economic slowdown. The Nifty IT index has shed nearly 8 per cent this week alone.

Banking stocks also struggled, with the Nifty bank index slipping 0.8 per cent as 11 of its 12 constituents ended in the red. Other major sectoral indices, including Nifty auto, Nifty FMCG, Nifty PSU bank, Nifty healthcare, Nifty oil & gas, and Nifty media, fell 2-4 per cent.

Among the biggest losers in the Nifty 50 were M&M, Bharti Airtel, Wipro, Tech Mahindra, and IndusInd Bank, all plunging between 5-7 per cent. On the other hand, Hindalco, Trent, HDFC Bank and Coal India emerged as the session’s top gainers, rising 0.3-2 per cent.

In individual stock movements, Premier Energies declined almost 6 per cent as its six-month shareholding lock-in period ended. IREDA shares fell over 7 per cent as they debuted in the Futures & Options (F&O) segment, following a strong rally in the past five sessions.

Global markets remained weak, with Wall Street closing lower on February 27 after disappointing US economic data and a tech-sector selloff. European indices also opened in red as Trump’s tariff threats rattled investor sentiment. Asian markets mirrored the downtrend, reacting sharply to the new trade measures.

Brokerage firm JM Financial noted that a trade war appears imminent, posing risks to global economic growth. “Higher inflation in the US has delayed hopes of a Federal Reserve rate cut and dampened consumer confidence. Such uncertainty is particularly detrimental to IT services demand,” the firm stated.

Mphasis led the declines in the IT sector, sinking 6 per cent to Rs 2,232 per share. Other notable losers included Tech Mahindra (-5.81per cent), Wipro (-5.45 per cent), Persistent Systems (-5.13 per cent), Infosys (-3.97 per cent), TCS (-3.86 per cent), and L&T Technology Services (-3.17per cent). All Nifty IT index constituents traded in negative territory.

A report from HSBC Research on IT services indicated that the sector has historically outperformed when the rupee depreciates or broader markets face significant earnings downgrades. “We estimate a 2-3 per cent downside risk to IT earnings, compared to a 14 percent earnings growth estimate for the broader Nifty. Given the fundamental outlook, IT may struggle to outperform the market in FY25-26,” the report stated.

Despite the ongoing turbulence, market analysts believe selective stock picking in fundamentally strong companies could present attractive opportunities over the next six to eight months. However, investors are advised to exercise caution, particularly in the midcap and smallcap segments, where differentiation between strong and weak businesses is crucial.