Introduction
On September 26, 2025, Indian equity markets witnessed a sharp and broad-based selloff, with both the BSE Sensex and NSE Nifty indices ending in the red. The Sensex dropped by around 733 points (≈ 0.9%) and the Nifty fell nearly 0.95% to close at ~24,654.7 points. This decline marked the sixth straight session of losses, highlighting persistent negative sentiment.
The fall was not restricted to one or two sectors; 15 out of the 16 major sectors ended lower. Among them, pharmaceuticals and IT bore the brunt of the damage. In the following sections, I examine the principal factors that triggered and deepened the decline.
Key Factors Behind the Market Fall
1. Tariff Shock to Pharma Exports
One of the most immediate triggers was the U.S. administration’s announced imposition of 100% tariffs on branded and patented pharmaceutical imports, effective October 1. That announcement rattled investor confidence in India’s pharma sector—export-oriented and closely integrated with the U.S. market.
Since the U.S. is a major destination for Indian drug exports (accounting for over one-third of total pharma exports, ~USD 10.5 billion in fiscal 2025) , the sudden tariff move created uncertainty over future margins, market access, regulatory exposure, and the viability of more complex generics and biosimilars.
The fallout was steep: the pharma index declined ~2.4–2.6% and many individual names like Sun Pharma, Natco, Biocon, Zydus came under selling pressure.
2. IT Sector Headwinds & Visa Policy Uncertainty
Beyond pharma, the IT sector also struggled significantly on September 26. Global tech players such as Accenture flagged soft demand outlooks (2–5% revenue growth), which fed into concerns about outsourcing demand, pricing pressure, and margins in the Indian context.
Compounding that were fears around recent changes to the H-1B visa regime in the U.S., including higher visa application fees — a move that could raise costs for Indian IT firms heavily dependent on U.S. client contracts. Several of the large IT names dropped toward 52-week lows, dragging down the IT index.
Given the weight of IT in the Nifty index, weakness in this sector had amplified broader market pressures.
3. Foreign Institutional Investor (FII) Outflows & Weak Sentiment
Despite strong domestic liquidity, sustained selling by foreign institutional investors (FIIs) has been a recurring drag on Indian equities. The tariff shock and global risk aversion exacerbated the exit of foreign capital, further pressuring the indices.
As global markets reeled from concerns about trade wars, rate policy, and growth, investors sought safer havens, reducing risk appetite for emerging markets like India.
4. Global & Macro Risk Factors
The domestic market did not move in isolation. Several macro and global cues added to the headwinds:
- Reduced expectations of U.S. interest rate cuts: Some recent U.S. data signaled that the Federal Reserve might hold rates steady longer, dampening optimism about global monetary easing.
- Currency pressure: The Indian rupee softened modestly (to ~₹88.72 per USD) during the session, raising concerns about import costs, inflation, and external vulnerability.
- Precious metals appeal: With risk sentiment sagging, some investors rotated toward gold and safe assets, reducing allocations to equities.
5. Earnings Skepticism & Valuation Caution
Another tempering factor was unease ahead of the Q2 (July–September) earnings season. Many market participants appeared unwilling to add exposure without clear signs of revenue and profit growth, particularly given the challenging external backdrop.
In addition, the sharp move lower may have triggered technical selling, stop-loss breaching, and momentum-driven exits, amplifying the decline as indexes fell deeper.
Consequences & Observations
- The mid-cap and small-cap segments underperformed broader indices, with drops of ~0.8% and ~1.2% respectively, indicating that risk aversion extended beyond large-cap names.
- Index breadth was weak; most stocks ended in the red.
- Market capitalization losses were significant: many reports cited daily wealth erosion amounting to ₹6.7 lakh crore (~₹6.7 trillion) on BSE-listed stocks.
Outlook & Risks Ahead
While the September 26 drop was painful, several questions and risks will likely determine whether the slide continues or stabilizes:
- Clarifications or reversals on U.S. tariffs: Any diplomatic dialogue or carve-outs for generic drugs could ease the overhang on India’s pharma exports.
- Earnings surprises: If companies post stronger-than-expected results, especially in export-oriented sectors (IT, pharma), it could restore confidence.
- Policy response: The Indian government or RBI may consider steps to support the markets or assuage investor concerns, whether via regulatory measures or liquidity actions.
- Global cues & capital flows: Any shift in global risk appetite (e.g. a dovish Fed, easing trade tensions) could help reverse FII outflows. On the other hand, further stress abroad could deepen outflows.
- Technical levels & market sentiment: Markets may find support near prior lows, and whether the downward momentum is sustained will depend on sentiment and positioning.
Conclusion
The steep fall in Indian equity markets on September 26, 2025, was driven by a confluence of negative factors: the surprise U.S. tariff announcement on branded drugs, weak demand cues for IT, renewed foreign capital outflows, macro and global headwinds, and guarded earnings expectations. While the immediate catalyst lay in the pharma space, the spillover across sectors reflected deeper fragility in sentiment.