April 4 Massacre: How Trump’s trade War & FII Flight Drowned Indian stocks in Red?

Indian stock markets had one of the worst trading sessions in history on 4th April 2025 as Sensex and Nifty crashed over 6%, eroding nearly ₹25 lakh crore worth investor’s wealth in a couple of hours. The crash was triggered by an unexpected tariff announcement from US President Donald Trump along with relentless selling by Foreign Institutional Investors (FIIs). Panic was so severe that the circuit breaker halted the trade twice leaving investors shocked and looking for safety.

The mayhem began after Trump, who had been sworn in as the U.S. President again just a few months earlier, announced a massive 26% tariff on $300 billions of imports aimed at China, India and other Asian economies to protect American industries. The news created panic among global investors, and Indian exporters in IT, pharma and manufacturing had an immediate reaction. Stocks of TCS, Infosys and Sun Pharma - firms with heavy dependence on US sales - plunged by 8-12% as investors saw their revenues shrinking dramatically with the new regulation. Auto stocks like Tata Motors and steel companies like JSW Steel got hammered too as the Street worried about declining exports and possible trade wars.

Aggravating the crisis, Foreign Institutional Investors (FIIs) were seen aggressively selling, and they had started withdrawing from Indian equities in early March. Soaring U.S. bond yields and a stronger dollar had already turned emerging markets less appealing, and Trump’s tariff declaration prompted an accelerated flight. On April 4 alone, FIIs sold a record ₹25,000 crore ($3 billion) worth of Indian shares — the largest single-day outflow since the 2008 financial crisis. Net sellers and FIIs aggressively sold shares worth of ₹75,000 crore (based on SEBI statistics), on the other hand, domestic institutional investors (DIIs) tried to stem the bleeding by bringing in ₹12,000 crore but not enough against the FIIs onslaught. The market crash was so swift that exchanges had to initiate circuit breakers two times. Within the first 45 minutes of trading, Nifty fell 10%, prompting a 45-minute halt. When trading opened again, the selling accelerated, and the index fell another 5 percent, triggering a second halt. By the end of the session, the Sensex had tumbled 4,200 points while the Nifty plunged 1,350 points, one of the steepest single-day drops in India’s financial history. Mid-cap and small-cap stocks had even worse losses, with some tumbling about 10%. Aside from the immediate causes, deeper economic worries were aggravating the panic. Oil prices had soared over $100 a barrel, causing concerns about imported inflation. The rupee, which was already under pressure, crashed to a historic low of ₹86.50 against the dollar, causing new apprehension among investors. The Reserve Bank of India was confronted with a difficult decision: to increase interest rates to support the rupee and curb inflation at the expense of slower growth, or keep the rates unchanged and threaten additional capital flight.

End retail investors, some of whom had only entered the market during the 2023-24 bull run, were blindsided. Margin calls forced leveraged traders to liquidate positions, fueling the downward spiral. The derivatives market was reeling under huge unravelling of positions in Nifty Bank futures, while options traders were stuck with losses stemming from the steep loss. The market mood shifted from optimism to outright panic, as portfolios were decimated within a couple of hours.

As fear took hold of the markets, Finance Minister Nirmala Sitharaman was expected to hold meetings with SEBI and RBI officials within the next few hours. Government sources said that measures such as tax relief on capital gains and steps to shore up the rupee were being considered in an urgent manner. While no official announcement had been made, analysts suggested that such interventions would be key to regaining investor confidence following the historic sell-off. Although no immediate stimulus was announced, sources indicated that the government was exploring a range of measures, including tax relief on capital gains and measures to check the fall in rupee. Analysts polled by Reuters had expected these steps to stem the net selling in the market, but many of them believed that beyond policy measures, what was truly needed was a boost in market confidence.

In the longer run, analysts stated that given uncertainty over U.S. trade policies and FII behavior, volatility would likely persist. If foreign outflows continue, the Nifty could re-visit the psychologically significant 15,000 mark. However, others pointed to a silver lining in the robust monthly SIP inflows of around ₹20,000 crore, which could offer support and mitigate further declines.

April 4, 2025, arrived as a stark reminder of just how tightly linked and fragile world markets are. While it could be a buying opportunity for long-term investors, the wounds of this financial bloodbath won't heal overnight. For now, panic and uncertainty continue to dominate the streets of the Indian market.

Md. Khalid Anwar is a student pursuing B.B.A honors from Jamia Millia Islamia.

Edited by: Arslaan Beg.