Beyond oil prices and bond yields: Here is what could be driving NIFTY50's 6% slump in September

Benchmark indices extended their fall for the second consecutive week, hitting multi-month lows on Tuesday. The broader sentiment remains soured across the board as the headline indices trade over 11% lower in 2026, underperforming their closest global peers. At the stock-specific level, the index heavyweight stocks like HDFC Bank, Reliance Industries, Tata Consultancy Services, and others trade near 52-week low levels. Meanwhile, the broader markets showed some resilience earlier this month to hit fresh record highs, but failed to defend those levels as well.

Much of this fall is broadly correlated to global factors as uncertainty prevails in the Middle East with escalated war between the US and Iran, rising crude oil prices and its spillover effects on the global economy. Additionally, the end of cheap money policy across the globe has also led Treasury yields to hit multi-decade high levels. The Treasury yields in the US are close to 2007 levels; Japanese interest rates are back to where they were in the 1990s. Similarly, some European bond yields also trade at multi-year high levels, creating a competitive advantage for other asset classes against equities. At the same time, gold prices too have converged to 52-week low levels as investors turn their bets towards G-Sec instruments as a haven amid global uncertainty.

However, despite all these uncertainties, the global equity markets are soaring at near-record peaks: the NASDAQ 100 made a record high last week, delivering 1.5% returns in September to date; the S&P 500 delivered -0.3%; In Asia, the Japanese Nikkei index is up 0.5%, Korean KOSPI and Taiwan’s Taiwan weighted index are the top performers with 2.9% and 1.2% returns each.

At the same time, the NIFTY50 and SENSEX are down 6% in September among the top underperformers, just next to China at -6.4%. While other global indices managed to put up a resilient performance amid a gloomy atmosphere, the domestic equity indices fell the most amongst their closest peers. One might wonder, with a strong Q1 earnings season and record GDP growth at 7.8%, why the Indian market is underperforming the global benchmark with such a wide margin. Besides the elevated crude oil price, rising bond yields and missing AI trade, other key probable factors warrant close attention by investors.

Record FPI selling

The Foreign portfolio investors, who held nearly 20% of the entire Indian equity market a few years ago, have reduced their holdings below 17% in the past two years. As of 28th September, FII’s have sold over ₹2.45 lakh crore worth of Indian equities in the first nine months of 2026, which is significantly more than ₹1.66 lakh crore sold in 2025 entire year. Much of this selling was absorbed by the domestic institutional investors, who bought more than ₹5.6 lakh crore in the same period. The DII’s remained net buyers for the 37th consecutive month in a row, displaying the strength of investors.

Retail investor activity slowed down

Retail investors' activity slowed down in the secondary markets as sentiment remains bleak due to poor equity returns. According to NSE’s market pulse report, total turnover for individual investors in the equity cash segment declined 7.8% MoM in August 2026, marking the most significant decline in the cash market turnover for the segment in FY27. Similarly, Individual investors turned net sellers in August 2026, shedding ₹1983 crore, aggregating the two-month net selling over ₹5,600 crore for July and August. The individual investors turned net sellers for Indian equities in FY26, for the first time in five years. In summary, individual investor sentiment continues to remain negative on Indian equities, though they contribute at very minimal levels to the daily turnover, but the sentiment acts as a driver of overall fund mobilization activity in the coming months with a lag effect.

High primary issuances suck retail liquidity

It is evident that secondary market activity is primarily driven by strong participation by domestic investors, while individual investors prefer primary market issuances over secondary market opportunities. The NSE’s data highlights that individual investors' investments in the IPOs reached ₹13,925 crore in August, against the outflow of ₹1983 crore in secondary markets.

History does repeat

The primary market issuances have often created liquidity mobilisation problems as institutional and individual investors turned towards new listings for quick gains over the lacklustre secondary market opportunities. Moreover, the month of September also witnessed mega issues, like the National Stock Exchange raising ₹22,500 crore, which garnered a strong response from investors, leading to 5.7x oversubscription, largely driven by institutional investors. Alongside this, more than 20 other IPOs also hit Dalal Street.

The overall response to these IPOs could have impacted the secondary market fund mobilisation and investor participation activity, leading to a more than 6% drop in the NIFTY50. The current drop further strengthened the trend that mega IPOs suck the broader market liquidity in the secondary market and deliver poor performance. Here is how NIFTY50 fared during previous mega IPO

Bottomline

The underperformance of NIFTY50 is not just driven by the global factors which drive the overall sentiment and mood of the market, but the liquidity factors play a major role in deciding the direction of the market. The strong performance of market often leads to rise in primary market activity. However, mega IPOs like NSE, Hyundai, LIC, Paytm coupled with other primary market issuances, have shown the liquidity crunch in the secondary market impacting benchmark performances.