The Indian stock market has been under pressure for three consecutive sessions. On Wednesday, December 18, both the Sensex and Nifty 50 declined by 0.80 per cent during intraday trade. The selling was not confined to bluechips only as the BSE Midcap and Smallcap indices declined by a per cent.
Finally, the Sensex closed 502 points, or 0.62 per cent, down at 80,182.20, while the Nifty 50 ended the day at 24,198.85, down 137 points, or 0.56 per cent. The BSE Midcap index closed 0.61 per cent lower, and the Smallcap index ended with a loss of 0.76 per cent.
Considering today’s closing of 80,182.20, the Sensex has crashed 1,951 points in three days.
The overall market capitalisation of BSE-listed firms has dropped to nearly ₹453 lakh crore from about ₹459 lakh crore on Friday, December 13, making investors poorer by about ₹6 lakh crore in three sessions.
Nifty 50 falls below 20-day SMA
According to Shrikant Chouhan, the head of equity research at Kotak Securities, the market again experienced selling pressure at higher levels. A bearish candle on daily charts and a lower top formation on intraday charts indicate further weakness from the current levels. Additionally, after a long time, the Nifty Index closed below the 20-day SMA, which is largely negative for the short term.
Chouhan believes the current market texture is weak, but a fresh sell-off is only possible if it dismisses 24,150. The market could slip to 24,050-24,000 if it falls below this level. On the other hand, if it rises above 24,250, there could be a quick pullback rally up to the 20-day SMA or 24,350-24,400.
Sectoral indices today
Most sectoral indices suffered losses on Wednesday. The Nifty Media index cracked over 2 per cent, while the Nifty PSU Bank index fell 2 per cent. Nifty Bank, Financial Services, Private Bank and Metal indices suffered losses of over 1 per cent each.
On the other hand, the Nifty Pharma index rose by over a per cent. Nifty IT, too, rose with mild gains.
Why Indian stock market is falling?
Experts point out the following five reasons behind the last three day’s market downturn:
1. Caution ahead of the US Fed policy outcome
Amid sticky inflation and growing concerns about slowing growth, all eyes are on today’s US Federal Reserve policy decision.
The two-day policy meeting of the US Federal Open Market Committee (FOMC) started on December 17, and its outcome is due today.
Experts say while a 25 bps rate cut is widely expected, the updated economic projections and the US Federal Reserve’s dot plot are the key things to watch. They will shape expectations for the interest rate trajectory of the world’s most powerful central bank through 2025 and 2026.
“Policymakers on the Federal Open Market Committee (FOMC) are widely expected to announce a quarter-point interest rate cut at their final meeting of the year. However, concerns about inflation’s resistance to the Fed’s 2% target could prompt Chair Jerome Powell to signal a more patient and cautious approach to future rate cuts. The updated dot plot is also likely to show that the median participant now anticipates one less rate cut next year,” said Amit Goel, co-founder and chief global strategist at Pace 360.
2. Rupee’s weakness
The Indian rupee plunged to a record low of 84.95 per dollar on Wednesday, weighing on domestic market sentiment. Due to a strengthening dollar, experts expect the rupee to remain weak for some time, going beyond the 85 per dollar mark.
As weak currency accelerates foreign capital outflow, weakness in the rupee may keep the market sentiment low.
“We expect the rupee to trade with a negative bias on weak domestic markets and concerns over the economic slowdown. A strong US dollar and FII outflows may further weigh on the rupee. Traders may take cues from current account balance and housing data from the US. Investors may also watch out for the FOMC meeting decision tonight. USDINR spot price is expected to trade in a range of ₹84.75 to ₹85.20,” said Anuj Choudhary, a research analyst at Mirae Asset Sharekhan.
3. Foreign capital outflow
Foreign portfolio investors (FPIs) have resumed selling Indian equities this week amid rising dollar and US bond yields. FPIs sold Indian equities worth ₹6,409.86 crore on December 17 and ₹278.70 crore on December 16. On a monthly scale, however, they are still net buyers this month.
Experts note that FPIs typically sell Indian stocks toward the end of the year ahead of the holiday season. This year, the dollar’s appreciation, uncertainty around the US Fed’s interest rate trajectory, and Donald Trump’s tariff policies have accelerated the pace of capital outflows.
4. Deep losses in banking heavyweights
Shares of some banking heavyweights have been among the top drags on the benchmark indices in the last three days. On Wednesday, HDFC Bank and ICICI Bank were the two top drags on the Nifty 50 index.
The Nifty Bank index dropped 1.32 per cent, while the PSU Bank index and the Private Bank index fell 1.92 per cent and 1.11 per cent, respectively.
The Nifty Bank index has lost almost 3 per cent in the last three days.
5. Concerns over deteriorating macro
India’s trade deficit widened to an all-time high in November, primarily due to high gold imports. As Mint reported earlier, the trade deficit, or the amount by which the value of imports exceeds exports, hit a record $37.84 billion, compared with $21.31 billion in November 2023. A Bloomberg economists’ poll had predicted a deficit of $23 billion.
After the Q2 GDP prints came to the lowest in nearly two years and showed growth slowing for the third consecutive quarter, the higher trade deficit numbers have come as a fresh blow to sentiment.
“Market sentiment remains cautious ahead of the FOMC meeting, as well as potential policy and tariff shifts from the incoming US administration. This caution is further influenced by India’s premium valuation, which is significantly above the current earnings growth trajectory that has slowed over the last two quarters. Additionally, the widened November trade deficit has negatively affected domestic sentiment,” said Vinod Nair, Head of Research at Geojit Financial Services.
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