Sensex drops 200 points; why did Indian stock market fall after RBI monetary policy? Explained

Hopes of a rebound after a 25 bps rate cut were dashed as the Indian stock market benchmarks—the Sensex and the Nifty 50—closed with losses on Friday, February 7, extending losses for the third consecutive session.

The Reserve Bank of India (RBI) announced a 25 bps rate cut on Friday. While rate cuts tend to improve market sentiment, the RBI’s policy move failed to do so.

The Sensex closed at 77,860, down 198 points, or 0.25 per cent, while the Nifty 50 ended 0.18 per cent down at 23,559.95.

ICICI Bank, ITC, Reliance Industries, HDFC Bank, SBI, TCS and Infosys ended as the top drags on the Sensex and the Nifty 50.

The BSE Smallcap index followed suit, closing 0.68 per cent lower. However, the BSE Midcap index outperformed the Sensex, gaining 0.13 per cent.

The overall market capitalisation of BSE-listed firms dropped to nearly ₹424 lakh crore from nearly ₹425 lakh crore from the previous session, making investors lose about ₹1 lakh crore in a session.

Sectoral indices today

Nifty Bank index declined 0.44 per cent, while the Financial Services index lost 0.51 per cent. The PSU Bank and FMCG indices lost 1.38 per cent and 1.30 per cent, respectively.

On the other hand, the Nifty Metal index jumped 2.66 per cent.

Why did Indian stock market fall today?

The Indian stock market had already discounted a 25 bps rate cut so it failed to boost market. Moreover, RBI Governor Sanjay Malhotra did not offer much clarity about the current rate reduction cycle. This seems to have disappointed the market.

“The RBI Governor offered no assurance of further rate cuts, adding to market uncertainty. The 25-basis-point rate cut was already priced in, failing to lift investor confidence,” Prashanth Tapse, Senior VP of Research at Mehta Equities, noted.

Concerns about a slowdown in the Indian economy are also making investors cautious about betting on riskier equities.

A slight downward revision in the RBI’s growth forecast also appears to have impacted market sentiment.

The RBI now projects real GDP growth for the current year at 6.4 per cent, down from 6.6 per cent in its December policy meeting. Real GDP growth for 2025-26 is projected at 6.7 per cent, with Q1 at 6.7 per cent (against 6.9 per cent projected earlier), Q2 at 7 per cent (from 7.3 per cent projected earlier), and Q3 and Q4 at 6.5 per cent each.

Weak quarterly earnings of Indian corporates continue weighing on sentiment.

“Weak corporate earnings are dampening market sentiment, with major companies reporting results below expectations,” Tapse noted.

Relentless selling of Indian equities by foreign institutional investors (FIIs) has emerged as the primary reason behind the decline in the domestic market. FIIs have been offloading Indian stocks since October last year, driven by rising US bond yields, a weakening Indian rupee, and uncertainty surrounding US Federal Reserve rate cuts and President Donald Trump’s tariff policies.

“Selloff by FIIs is perhaps the biggest reason behind the recent market downturn. They continue to sell, while concerns over US tariff policies further weigh on sentiment,” said Tapse.

Nifty 50 technical outlook

Rupak De, Senior Technical Analyst at LKP Securities, pointed out that even though the market remained volatile today, the Nifty 50 remained above the 21 EMA on the daily timeframe, signifying a positive short-term trend.

“The trend is likely to remain positive as long as the index stays above 23,450. On the higher end, resistance is placed at 23,700. A decisive move above 23,700 could lead to a rally toward 24,050,” said De.

Ajit Mishra, SVP of Research at Religare Broking, observed with major events now behind us, the focus will shift back to earnings for further cues.

He said the Nifty held its crucial short-term support at the 20 DEMA, and sustaining this level will be key for a potential rebound towards 23,900. Otherwise, the bias may turn sideways.

Read all market-related news here

Read more stories by Nishant Kumar

Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.