Sensex, Nifty Decline 4.5% From August Highs: What's Behind The Selloff And What Investors Should Watch Next

Dalal Street’s correction showed little sign of easing on September 8, 2026, with benchmark indices extending their losses amid persistent global concerns.

The 30-share BSE Sensex ended the session at 75,577.58, down 555.23 points, or 0.73 per cent. The NSE Nifty 50 settled 144.05 points, or 0.61 per cent, lower at 23,635.10.

With the latest decline, the Sensex is now down 4.45 per cent from its August peak, while the Nifty has slipped 4.55 per cent from its high scaled in the first week of the month.

A mix of global headwinds, including uncertainty over the US Federal Reserve’s rate outlook, has kept investors cautious and weighed on market sentiment.

The damage hasn't spread evenly. The Nifty Midcap 100 has corrected a milder 2.50 per cent, and the Nifty Smallcap 100 is still hovering near its all-time high. The Nifty 500, which accounts for close to 92.04 per cent of NSE's free-float market capitalisation, is down nearly 3 per cent. Meanwhile, the Nifty Microcap 250, tracking the 250 stocks outside the Nifty 500 universe, touched a fresh record high on September 8 itself.

FMCG And Auto Have Taken The Biggest Hit

Sectorally, the pain has been sharpest in consumption and export-facing pockets. FMCG stocks have borne the brunt, down 8.35 per cent from their August peak, followed closely by auto, off 7.10 per cent, and IT, down 6.36 per cent. The fall in these three sectors captures much of the damage from a firmer dollar and softer global demand cues.

PSU banks have slipped 5.38 per cent, while the broader financial services basket is down 4.50 per cent. Realty and metals have seen comparatively milder cuts of 3.81 per cent and 3.52 per cent, and oil & gas stocks have shed 2.90 per cent as crude oil prices have rallied through the month.

The banking sector as a whole, Nifty Bank, has held up better, down just 2.46 per cent. Pharma has emerged as the strongest defensive pocket, declining only about 1.31 per cent from its August peak.

Fed Rate Hike Bets, Crude And Bond Yields Have Turned Unfriendly

Rate-hike expectations strengthened after the US nonfarm payrolls data released on September 4 beat forecasts by a wide margin. Payrolls rose by 162,000, on top of an upwardly revised 21,000 gain in July. CME's FedWatch tool now puts the odds of a 25-basis-point Fed hike at 60.4 per cent, which would push the Fed funds rate to a 3.75-4.00 per cent range from the current 3.50-3.75 per cent.

President Trump reacted on Truth Social, calling the payrolls print "nearly TRIPLE the predictions of the Bloomberg survey's so-called 'Economists,'" and repeated his call for the Fed to cut rates rather than raise them, arguing a stronger US economy justifies cheaper borrowing.

“This tug-of-war between the Fed and the White House is adding a genuine layer of uncertainty that markets globally, and India along with them, will need to navigate through the September FOMC meeting and beyond. A hawkish surprise would likely extend the current risk-off phase for emerging markets, while a dovish outcome or a pause would probably see flows normalise fairly quickly, given India's underlying fundamentals haven't changed. Our own base case is that this policy uncertainty keeps global markets, and FPI flows into India, volatile and headline-driven over the next few weeks, but we don't see it altering the medium-term domestic earnings and capex story that continues to underpin our positioning,” says Sandeep Neema, director and fund manager at PL Asset Management.

Crude has added to the pressure. Brent futures traded at USD 98.40 a barrel and WTI at USD 93.74 a barrel as of 3:30 PM on September 8, up more than 11 per cent this month after a fresh escalation in the US-Iran conflict in West Asia, which has also stoked inflation concerns. US 10-year bond yields have climbed to 4.80 per cent, close to a 17-month high.

What Experts Are Seeing

Market experts are divided on how much further the correction could run, but there is broad agreement that the current weakness is being driven more by global factors, valuations and foreign flows than by any sharp deterioration in India’s domestic fundamentals.

Harsh Gupta Madhusudan, fund manager and chief India strategist at Ionic Wealth, sees the current phase as a risk-off move driven largely by external factors. Rising US 10-year yields, which are moving towards 5 per cent, crude prices nearing USD 100 and higher AI-related capex spending in the US are adding to the pressure. US fiscal concerns and geopolitical tensions are further weighing on investor sentiment.

Madhusudan does not expect an aggressive rate-hike cycle from either the US Fed or the Reserve Bank of India (RBI). He expects any rate hikes over the next six months to be shallow. FCNR inflows have also provided some support to the rupee, limiting the impact of external pressures.

FCNR inflows have provided some support to the rupee, cushioning it from external pressures, according to Madhusudan. He expects Indian large-caps could see a short squeeze if geopolitical tensions ease.

Neema of PL Asset Management reads this as a valuation and flow-driven pullback rather than a sign of weakening fundamentals, noting that Q1 FY27 earnings were among the strongest in several quarters and domestic institutional investors (DIIs) have absorbed most of the selling. He says, “This looks more like a valuation and flow-driven pullback than the start of a fundamental reassessment of India's growth story.”

He sees this year's foreign portfolio (FPI) flows as episodic, tracking crude and bond yields rather than earnings. However, he adds, “India's growth-versus-valuation equation, credit growth at multi-year highs, an improving capex cycle, and a resilient earnings season, continues to compare favourably, which should draw flows back once the current bout of dollar and yield strength stabilises.”

He sees the current volatility as an opportunity to selectively add large-caps that stand to benefit from the capex and credit upcycle, particularly financials, metals and industrials, where earnings visibility remains strong.

Ajit Mishra, senior vice-president of research at Religare Broking, believes higher US yields and a stronger dollar are key factors influencing foreign investors’ allocation between Indian and US equities.

What matters most, he says, isn't the absolute level of yields but "the speed and direction of the move," since that shapes portfolio flows and risk appetite.

What's Next

Markets now turn to the US producer price index (PPI), due September 10, and the Consumer Price Index (CPI) print on September 11. Both data points will shape the Fed's rate path heading into its September 15-16 policy meeting, and with it, the near-term direction of FPI flows into India.

“A hotter-than-expected US inflation print would likely cement the case for a Fed rate hike, pushing US yields and the dollar higher still, and that would almost certainly extend near-term pressure on FPI flows into India along with other emerging markets,” says Neema.

According to Mishra, “The impact could be particularly visible in rate-sensitive and globally exposed segments. However, the extent of the market reaction will depend on the magnitude of the inflation surprise and its impact on Fed rate expectations. Strong domestic liquidity and resilient economic growth should provide an important counterbalance.”