Indian benchmark equity indices Sensex and Nifty50 ticked sharply lower for the second consecutive day on Tuesday, dragged down by index heavyweights Reliance Industries, Infosys, and HDFC Bank, as investors remained cautious ahead of the US Federal Reserve's December 18 meeting for signals on its rate cut trajectory.

The BSE Sensex tumbled over 1,000 points to trade below 80,750. The Nifty50 was down 300 points, trading below 24,400 around 12:24 pm.

The market capitalisation of all listed companies on BSE declined by Rs 2.33 lakh crore to Rs 257.73 lakh crore.

Among Sensex stocks, Reliance Industries, HDFC Bank, Infosys, Bharti Airtel, and ICICI Bank were the top drags on the index. On the other hand, Tata Motors, Adani Ports, Tech Mahindra, HUL, HCL Tech, and Power Grid opened with gains.

Key factors behind today's market fall:

1)Nervousness ahead of Fed meet

Investors turned cautious ahead of the Federal Reserve's policy meeting scheduled for tomorrow, which is expected to provide signals on the central bank's rate-cut trajectory.

While the CME FedWatch tool shows a 97% probability of a 25 basis-point rate cut on Wednesday, uncertainty remains over the Fed's 2025 rate path due to recent U.S. data indicating persistent inflation and a resilient economy.

"Globally, markets will be looking forward to the FOMC outcome on Wednesday. Markets have already priced in a 25bp rate cut, so the focus will be on the Fed chief’s commentary. Any departure from dovish commentary will be negative from the market's perspective," said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

2) Weakness in China's economy

Data released on Monday showed that China's consumption slowed more than expected in November. Retail sales grew by just 3%, much slower than October's 4.8% rise, while industrial output grew by 5.4% year-on-year, in line with October. This slowdown could impact global commodity demand, posing risks for the metals, energy, and auto sectors in India, which are sensitive to China's economic trends.

In today’s trade, Nifty Metal and Auto sectors declined by over 0.6%.

3) Stronger Dollar

The dollar index, which measures the U.S. currency against six major rivals, held steady at 106.77 but remains on track for a 5% gain this year. A stronger dollar reduces foreign investor appetite for Indian equities, as it makes investments in emerging markets less attractive and increases the cost of dollar-denominated debt for Indian companies.

4) Trade deficit widens

India's merchandise trade deficit in November widened to an all-time high of $37.84 billion, up from $27.1 billion in October, as the nation’s import bill ballooned and exports declined. "

The sharp spike in India’s trade deficit to $37.8 billion in November will put pressure on the rupee, pushing it towards 85 to the dollar. Exporters, like IT and pharma, will benefit from a depreciating rupee, but for importers, the increased import cost will impact their stock prices," said Vijayakumar.

5) Global Markets

Indian equity markets also declined on Tuesday, tracking a drop in global peers, as traders braced for a slate of central bank meetings this week. The U.S. Federal Reserve is expected to deliver a rate cut, while the Bank of Japan is likely to maintain its current stance.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.3%. Japan's Nikkei dropped 0.15%, while futures indicated a subdued opening for European stock markets. Eurostoxx 50 futures were down 0.16%, German DAX futures were off 0.06%, and FTSE futures were 0.24% weaker.

Published on Dec 17, 2024, 12:24:00 PM IST

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