12 January 2026: Indian equity markets have witnessed a sharp and sustained selloff over the past six trading sessions, eroding investor wealth by an estimated ₹18.5 lakh crore. The benchmark Sensex has plunged nearly 2,900 points, while the Nifty50 has declined close to 3%, triggering anxiety among retail and institutional investors alike. The sudden correction has raised a critical question across Dalal Street: what exactly is driving this steep fall?
Market participants point to a combination of global and domestic factors that have converged to create a risk-off environment. One of the biggest triggers has been weakness in global markets. Persistent uncertainty around US interest rates, concerns over sticky inflation, and rising bond yields have reduced appetite for emerging market assets. As US Treasury yields climbed to multi-month highs, foreign investors began shifting capital back to safer assets, putting pressure on equities across Asia, including India.
Foreign Institutional Investors (FIIs) have been consistent net sellers during this period. Heavy FII outflows have added significant downward pressure on frontline indices. Market data suggests that overseas investors have offloaded thousands of crores worth of Indian equities in just a week, reversing the strong inflows seen earlier in the year. Analysts note that global funds are currently adopting a cautious stance, preferring liquidity over risk amid uncertain macroeconomic signals.
Another key factor weighing on markets is concern over corporate earnings. While some sectors have delivered stable results, expectations for strong earnings growth across the board are being reassessed. Rising input costs, margin pressures, and slower demand in certain industries have prompted brokerages to revise their earnings forecasts. This has led to valuation corrections, particularly in sectors that were trading at premium multiples.
The banking and financial sector, which carries significant weight in benchmark indices, has also seen notable selling. Profit booking in large private banks and financial stocks has dragged the indices lower. Although fundamentals remain relatively strong, traders appear to be locking in gains after the sector’s strong rally over the past few months.
Technology stocks have also faced pressure, largely due to global cues. Weakness in US tech stocks, concerns over reduced discretionary IT spending by global clients, and cautious commentary from some international firms have impacted sentiment around Indian IT majors. As a result, heavyweight tech stocks have contributed to the broader market decline.
Midcap and smallcap stocks have been hit even harder. After months of sharp rallies, these segments had reached stretched valuations. The ongoing correction has exposed their vulnerability, with several stocks witnessing double-digit losses in a short span. Analysts warn that while the long-term growth story for quality midcap companies remains intact, investors need to be cautious about frothy valuations and speculative counters.
Domestic economic factors have also played a role. Inflation concerns have resurfaced due to fluctuating food prices, and uncertainty around crude oil prices continues to pose a risk for India’s import bill and fiscal balance. Any sustained rise in oil prices could negatively impact inflation and widen the current account deficit, adding further pressure on markets.
Geopolitical tensions globally have added another layer of uncertainty. Conflicts in various regions, coupled with fragile diplomatic relations between major economies, have kept investors on edge. Markets generally dislike uncertainty, and such geopolitical developments tend to prompt investors to reduce exposure to equities.
Despite the selloff, some market experts believe the correction is healthy. They argue that Indian markets had rallied significantly over the past year and were due for consolidation. A controlled correction, they say, helps reset valuations and offers long-term investors an opportunity to accumulate quality stocks at more reasonable prices.
Retail investors, however, have borne the brunt of the decline. The sharp fall in portfolio values over just a few sessions has dented sentiment, particularly among new investors who entered the market during the recent bull run. Financial advisors are urging investors to avoid panic selling and instead focus on long-term goals, diversification, and disciplined investing through systematic investment plans (SIPs).
Market strategists suggest that near-term volatility is likely to persist. Much will depend on upcoming global cues, including US economic data, central bank commentary, crude oil movements, and further FII activity. Domestically, upcoming corporate earnings reports and government policy signals will also influence market direction.
Going forward, experts recommend a selective approach. Defensive sectors such as FMCG and pharmaceuticals may offer relative stability, while quality large-cap stocks with strong balance sheets could provide better risk-adjusted returns. At the same time, investors are advised to be cautious in highly speculative segments until broader market stability returns.
In summary, the ₹18.5 lakh crore erosion in investor wealth over just six days highlights how quickly market sentiment can change. While the selloff has been sharp, it is driven by a mix of global uncertainty, valuation concerns, and profit booking rather than any single catastrophic event. For long-term investors, the focus remains on staying disciplined, avoiding emotional decisions, and using market corrections as opportunities rather than reasons for panic.
Summary
Indian markets crashed for six straight sessions, erasing ₹18.5 lakh crore in wealth as Sensex fell 2,900 points and Nifty dropped 3%, driven by global uncertainty, FII selling, and valuation concerns.