Bear attack drags Sensex down 1,200 points, Nifty slips 1.5%: Key factors behind today's market fall

IT and auto stocks were the top drags on the Nifty, with sectoral indices falling 2.3 percent and 1.5 percent, respectively. Infosys shares fell 3.5 percent; TCS fell 1.9 percent; Tech Mahindra was down 2.5 percent; and HCL Tech was down 2.7 percent, leading the losses in the IT space.

Auto majors Mahindra & Mahindra (-3.3 percent) and Eicher Motors (-2.2 percent) were also among the top losers in the auto pack.

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The decline in IT stocks follows overnight the US inflation data, which signalled a slower-than-expected trajectory for rate cuts. This raises concerns about reduced client spending, a critical factor for Indian IT companies with high US exposure.

Global rate concerns impacting sentiment

Krishna Rao, co-head of equity broking at JM Financial Services, said, “We expect markets to remain volatile due to a lower pace of rate cuts given higher growth in the US, and likely higher inflation after Trump's presidential win.” A potential slowdown in the US rate cut trajectory has increased uncertainty for emerging markets, affecting overall investor sentiment.

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A stronger US Dollar has also dented the appeal of emerging-market assets. Asian equities are under pressure, following the dollar’s recent advance and concerns over escalating trade tensions.

Technical resistance for Nifty

Sudeep Shah, Head - Technical & Derivatives at SBICAP Securities, said that the Nifty is struggling to move past the immediate resistance zone of 24,320-24,350, which aligns with its 100-day EMA. “A sustainable move above 24,350 could extend the pullback rally to 24,550 in the short term, but the downside support zones of 24,160-24,130 remain critical. Any breach of 24,130 could push the index lower to 23,980,” Shah said.

Cautious stance from institutions, FIIs may not turn aggressive buyers

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, highlighted the cautious stance of large institutions amid global uncertainties. "While the cessation of relentless FII selling is a positive, FIIs are unlikely to turn aggressive buyers given the strong dollar and macro headwinds in emerging markets," he said. Vijayakumar also noted that institutions are likely to wait for clarity on U.S. President-elect Donald Trump's policies and their impact on global trade.

Market outlook

The ongoing correction has brought valuations to more reasonable levels, with the Nifty’s price-to-earnings ratio moderating to an estimated 21x from October’s peak of 25.8. Anirudh Garg of Invasset PMS suggested raising cash levels in portfolios, citing stretched valuations. "Indian markets need to take a breather from current levels," he said.

While the cessation of FII selling provides some relief, experts anticipate volatility to persist in the near term as markets digest global cues and policy developments.

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