Benchmark indices on Tuesday recorded their biggest single-day fall in three weeks as sustained selling by foreign investors coupled with disappointment on the earnings front weighed on investment sentiment. The Sensex ended the day down 931 points at 80,221 while the Nifty slipped 309 points to settle at 24,472.

Both indices recorded the biggest fall since October 3, 2024. Nifty Midcap 100 and Smallcap 100 declined 2.6 percent and 3.9 percent, respectively.

The Sensex is now down 6.7 percent and the Nifty 7 percent from its peak level of September 27, 2024. The Nifty Midcap 100 and Nifty Smallcap 100 have fallen 8 percent from their respective highs. Meanwhile, India's market capitalization has fallen by Rs 9.2 lakh crore from its peak of Rs 444 lakh crore ($5.3 trillion).

What reason for the fall in the stock market?

This decline has been seen amid record withdrawals by foreign portfolio investors. So far this month, they have withdrawn about $10 billion (Rs 82,845 crore) from the domestic market. A large part of this fund is now seen moving from India to China, where the government has announced several steps to support the economy and the stock market. China's markets are trading at a huge discount to India.

Slow earnings growth of large companies in the September quarter and uncertain demand outlook have dampened the highs of Indian stocks. Analysts say as long as earnings remain tepid and FPI selling continues, a sustained recovery in the market will be difficult.

Motilal Oswal Financial Services' Head of Research (Wealth Management) Siddharth Khemka said that there have been signs of a slowdown in the second quarter's earnings, which has affected the morale. We think the pressure in the market will continue. However, investors can adopt a buy-on-dips strategy to purchase good stocks.

The sluggish outlook for US interest rates has also added to investors' concerns. Investors reduced their bets on Fed rate cuts when a US Federal Reserve official hinted at a slow rate cut. Investors are also worried about the impact if Trump, who has promised tax cuts and reduction in trade tariffs, wins.

In the coming time, the rest of the earnings season and FPI investment will decide the direction of the markets. Religare Broking Senior Vice President Ajit Mishra said that the outlook suggests that there will be a further decline, especially in mid and small-caps. The next important level of support for the index is around 24,000 and if there is a correction, the possible resistance will be between 24,700 and 25,000.

The ratio of rising and falling stocks in the market was weak and 3,430 stocks fell while only 557 rose. All the Sensex stocks fell except one. Reliance Industries fell by 1.8 percent and was the biggest contributor to the decline in the Sensex.