Equity Benchmarks Retreat After Rally Amid Profit-Taking

Equity benchmark indices Sensex and Nifty slipped in early trade on Tuesday, following a sharp rally in the previous session, as investors booked profits.

Figure 1. Markets Fall in Early Trading After Robust Rally in Prior Session.

The 30-share BSE Sensex fell by 497.5 points to 81,932.40 in initial deals, while the NSE Nifty declined 117.2 points to 24,807.50. Figure 1 shows Markets Fall in Early Trading After Robust Rally in Prior Session.

As the session progressed, losses deepened with the Sensex dropping 788.62 points to 81,641.28 and the Nifty sliding 209.90 points to 24,714.80.

Markets Slip After Monday's Historic Rally; Global Cues Mixed

Equity benchmark indices retreated in early trade on Tuesday, following a sharp rally in the previous session, as investors engaged in profit-booking. The BSE Sensex fell 497.5 points to 81,932.40, while the NSE Nifty declined 117.2 points to 24,807.50. Losses deepened as the session progressed, with the Sensex dropping 788.62 points to 81,641.28 and the Nifty sliding 209.90 points to 24,714.80.

Among the major laggards on the Sensex were Infosys, Eternal, Power Grid, Kotak Mahindra Bank, ICICI Bank, HCL Tech, Tata Consultancy Services, and Nestle.

In the broader Asian markets, South Korea’s Kospi, Japan’s Nikkei 225, and China’s SSE Composite traded higher, while Hong Kong’s Hang Seng index slipped. Overnight, U.S. markets rallied sharply, with the Nasdaq surging 4.35%, the S&P 500 rising 3.26%, and the Dow Jones gaining 2.81%.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, attributed Monday’s surge in Indian markets—where the Nifty jumped 916 points and the Sensex soared 2,975 points—not to institutional buying, but to short-covering and strong retail and HNI participation. “FIIs and DIIs bought a combined Rs 2,694 crore, which suggests that institutional activity played a limited role,” he noted.

He also highlighted the 90-day tariff truce between the U.S. and China as a positive signal for global trade and economic stability.

Brent crude slipped marginally by 0.23% to USD 64.81 per barrel. Meanwhile, Foreign Institutional Investors (FIIs) bought equities worth Rs 1,246.48 crore on Monday, resuming purchases after a brief pause.

Monday marked the largest single-day gain in absolute terms for Indian benchmarks, spurred by easing geopolitical tensions between India and Pakistan and a significant trade agreement between the U.S. and China.

Strong Rally in Previous Session

In the previous trading session, the markets experienced a sharp surge, fueled by positive news, such as the easing of geopolitical tensions and a potential breakthrough in U.S.-China trade talks. This caused a significant rise in investor sentiment, which led to substantial gains in major indices like the Sensex and Nifty.

Profit-Taking Triggers Decline

After such a strong rally, investors often engage in profit-taking, where they sell off some of their positions to lock in gains. This creates downward pressure on the market, leading to a decline in prices. Profit-taking is a common reaction after substantial market gains, as some traders aim to capitalize on the high prices.

Early Market Movements

At the start of the current session, both the Sensex and Nifty were in the red, showing immediate signs of a pullback. The Sensex dropped over 497 points, and the Nifty fell by more than 100 points in the early part of the trading day. This early decline reflected the market’s reaction to the profit-taking wave following the previous day's surge.

Factors Affecting Market Sentiment

While the market initially dipped, global cues also played a role in influencing investor sentiment. Asian markets were mixed, with some indices like South Korea's Kospi and Japan’s Nikkei 225 showing positive movement, while others like Hong Kong's Hang Seng were trading lower. These mixed signals from global markets could contribute to the cautious tone in domestic trading.

The Role of Short-Covering and Retail Participation

In addition to profit-taking, the previous day's rally was driven by short-covering (where investors who had bet against the market rushed to buy back stocks) and strong participation from retail investors and high-net-worth individuals (HNIs). On Tuesday, however, the market showed signs of a correction as the initial enthusiasm from those buying during the rally began to fade.

Reference

1. https://www.tribuneindia.com/news/business/markets-drop-in-early-trade-after-sharp-rally-in-previous-session/

Cite this article:

Priyadharshini S (2025), Markets Decline in Early Trading Following Strong Rally in Previous Session, AnaTechMaz, pp. 87