On Wednesday, June 26, Indian equity benchmarks Sensex and Nifty witnessed a sharp reversal, slipping into the red after a positive start, as investors grew increasingly cautious over uncertainties surrounding the India-US trade deal, ongoing foreign institutional investor (FII) selling, and lack of clarity from the US Federal Reserve on its interest rate trajectory.

After hitting an intraday high of 83,933.85, the Sensex dropped by 450 points from that level, trading at 83,530.09 later in the session. The Nifty 50, which rose to a high of 25,608.10, slipped below the psychological 25,500 mark, trading at 25,484.75 during the afternoon.

This decline came after days of relative market resilience, highlighting growing investor nervousness ahead of major domestic and international events.

1. India-US Trade Deal Uncertainty

One of the key concerns spooking the markets was the lack of clarity on the India-US bilateral trade pact, which both countries are working to finalize before the July 9 deadline.

On Tuesday, US President Donald Trump said the two countries were close to a deal with “much less tariffs”, but the absence of a formal agreement has led to increased caution among market participants.

Such trade deals often affect tariff structures, sectoral export/import expectations, and currency volatility. With no concrete outcome yet, market sentiment has taken a cautious turn.

2. Persistent FII Selling

Another key pressure point was continued FII selling. As per exchange data, Foreign Institutional Investors offloaded ₹1,970.14 crore worth of equities on Tuesday, continuing their recent trend of exits from Indian markets.

FII flows are closely watched by investors as they often signal global risk appetite and confidence in emerging markets like India. Persistent outflows usually drag down market sentiment, especially in a market trading near record highs.

3. US Fed Policy Uncertainty

Federal Reserve Chairman Jerome Powell, speaking at a forum in Portugal, avoided giving any clear signal about a rate cut in July. Instead, he stressed that monetary decisions would be made “meeting by meeting”, depending on data.

This ambiguous stance left global investors unsure about the near-term direction of US interest rates, leading to a cautious mood in equities globally, including India. The Fed’s next policy action remains a key macro trigger for both capital flows and currency markets.

4. Rupee Weakness

The Indian rupee also slipped 4 paise to 85.63 against the US dollar in early trade. Weakness in the currency, especially amid ongoing global uncertainty, tends to spook equity markets, as it increases import costs, inflationary pressure, and impacts foreign investment returns.

Currency traders remain wary of developments surrounding the India-US trade negotiations, which could potentially affect exchange rate dynamics in the near term.

5. Crude Oil Prices Inch Higher

Adding to the list of negatives, Brent crude prices edged up by 0.06% to USD 67.15 per barrel. Even a marginal rise in crude is concerning for India, which imports around 85% of its crude oil needs.

Higher crude prices translate to a widening trade deficit, greater pressure on inflation, and corporate margin stress, especially in oil-dependent sectors like paints, aviation, and logistics.

6. Mixed Global Cues

Global markets offered no clear direction either. Most Asian markets, including:

• Japan’s Nikkei

• South Korea’s Kospi

• China’s Shanghai Composite

were in the red. However, Hong Kong’s Hang Seng index bucked the trend and traded higher.

US markets had ended mixed on Tuesday night, reflecting investor indecision over Powell’s comments and inflation data. This lack of global cues left Indian markets vulnerable to profit-taking and cautious positioning.

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