The stock markets tanked in early trade on Thursday, mirroring losses in global markets, extending their losses for the fourth consecutive session.
This drop followed the US Federal Reserve’s decision to cut interest rates by 25 basis points for the third time in a row. While the rate cut was anticipated, the Fed’s cautious outlook on further cuts disappointed investors, dampening hopes for a year-end rally.
The S&P BSE Sensex fell by 1,153.17 points, or 1.44%, to 79,029.03, while the Nifty declined by 213.10 points, or 0.88%, to 23,985.75.
This marked the fourth consecutive day of losses for the benchmark indices. Leading the slide, Wipro dropped 2.64% to Rs 304.35, making it the worst-performing stock on the Nifty. Other significant losers included Shriram Finance, Asian Paints, Hindalco, ONGC, Infosys, and Tata Steel, which all declined by more than 2%.
GLOBAL SELL-OFF
The US Federal Reserve’s decision to cut rates to the range of 4.25%-4.50% was in line with market expectations. However, the Fed’s guidance for only two more rate cuts in 2025—against market hopes for three or four—spooked investors. This triggered a sell-off in Wall Street, with the Dow Jones dropping 1,123.03 points (2.6%) to 42,326.87, the Nasdaq falling 716.37 points (3.6%) to 19,392.69, and the S&P 500 tumbling 178.45 points (3.0%) to 5,872.16.
The cautious outlook also impacted Asian markets. Indices in Japan, China, and South Korea fell by up to 1.2%, and the sentiment carried over to Indian markets. Analysts suggest that the sharp correction may end hopes of a “Santa rally” in the final weeks of December.
DOMESTIC CONCERNS
Weak data on the domestic front added to the selling pressure. The rise in the US dollar and bond yields led to concerns about foreign outflows from Indian markets. The dollar index, which tracks the dollar’s strength against a basket of six major currencies, reached 108. Meanwhile, the 10-year US bond yield increased to 4.5%.
Foreign Portfolio Investors (FPIs) were net sellers, pulling out Rs 1,316.81 crore from Indian equities on Wednesday. Analysts noted that a stronger dollar and higher bond yields typically lead to capital outflows from emerging markets, adding pressure on local currencies.
The rupee is now at risk of further depreciation against the dollar, which could make Indian assets less attractive to global investors.
KEY LEVELS
Technical analysts highlighted critical support levels for the Nifty. Rajesh Bhosale from Angel One stated that 24,000 would act as a psychological level, while 23,900—aligned with the 200-day Simple Moving Average (SMA) and the 61.8% Fibonacci retracement—would serve as key support zones.
Santosh Meena, Head of Research at Swastika Investmart Ltd, said that the Put-Call Ratio (PCR) of 0.55 indicates an oversold market. This suggests that Nifty might stabilise in the 23,800–23,900 range and trade sideways in the short term.
V K Vijayakumar of Geojit Financial Services explained that high market valuations require only a small trigger for a sharp correction. The Fed’s guidance, which indicated slower rate cuts in 2025, provided that trigger. Vijayakumar added that while the Fed chief’s comments about the US economy and labour market were positive, markets reacted negatively as expectations were not met.
Nomura analysts had also predicted a hawkish Fed stance, expecting the pace of rate cuts to slow in the coming year. Their prediction materialised, with market sentiment turning cautious globally.