Domestic equity markets logged their steepest single-day decline in more than two weeks on Friday as heavy foreign portfolio investor (FPI) outflows linked to the MSCI index rebalancing triggered a sharp selloff in the final hour of trade.
After moving in a narrow range for most of the session, benchmark indices came under intense selling pressure in the closing hour. The BSE Sensex ended 1,092 points, or 1.44 per cent, lower at 74,776, while the NSE Nifty50 fell 359 points, or 1.5 per cent, to close at 23,548.
Market participants estimated that the MSCI rejig, which took effect at the close of trading, resulted in nearly $1 billion (over Rs 9,000 crore) of passive fund-related selling by global investors tracking the index.
“Whenever the index composition changes, these funds are required to rebalance their portfolios on the effective date to avoid tracking errors. Today, that translated into heavy net selling pressure, which naturally had a significant impact on the market,” explained U R Bhat, co-founder, Alphaniti Fintech.
Index heavyweights HDFC Bank, down 1.8 per cent, Reliance Industries, which fell 2.2 per cent, and ICICI Bank, down 1.3 per cent, accounted for a large part of the Sensex’s losses.
Market activity surged in several stocks due to passive fund adjustments linked to the MSCI rebalance. Infosys, HDFC Bank, Reliance Industries, Hyundai Motor India and Hindustan Unilever were among the stocks that brokers said witnessed significant passive selling.
Amid the MSCI rebalancing, the NSE’s cash market segment recorded an all-time high turnover of Rs 2.87 trillion, surpassing the previous record of Rs 2.71 trillion logged on June 4, 2024. The surge underscored the scale of passive fund activity during the closing session.
Barring information technology (IT), all major sectoral indices ended in the red as flow-driven selling intensified during the closing hour. IT stocks bucked the broader market trend after Wipro announced a partnership with US-based software provider ServiceNow to deploy agentic AI workflows across core enterprise functions.
The India VIX, a gauge of market volatility, rose 8 per cent to 16.2, reflecting heightened investor nervousness.
Market experts expect some stabilisation in the coming session now that the MSCI-related flows are behind the market.
“Going forward, there could be a slight rebound on Monday because the forced rebalancing activity is now behind us. However, the broader market direction will depend heavily on global developments, particularly the evolving geopolitical situation involving the US and Iran. At the moment, there is still no concrete agreement in place,” said Bhat.
Market breadth remained weak, with 2,673 stocks declining against 1,611 advancing.