Markets tumble for third straight day as investors brace for Fed rate decision

On the sectoral front, financial services bore the brunt of selling pressure, with HDFC Bank and ICICI Bank slipping 1.3 percent and 1.6 percent, respectively.

Sensex and Nifty slipped for the third consecutive session on December 18 as nervous investors braced for the US Federal Reserve's interest rate decision due later in the day. Over these three sessions, the Nifty has dropped 2.3 percent, while the Sensex has shed 2.5 percent. Today, sectors like financials, power, construction, and metals dragged the Nifty lower, while healthcare and IT stocks managed to buck the trend, posting gains amidst the sell-off.

At close, the Sensex was down 502 points or 0.6 percent at 80,182, and the Nifty was down 137 points at 24,198. About 1,379 shares advanced, 2,456 shares declined, and 92 shares remained unchanged.

"The markets are currently in a cautious mode ahead of the Fed decision. This is evident from the decline witnessed over the last two days and today as well," said Astha Jain, Senior Research Analyst at Hem Securities. "However, after the Fed meeting, there's a possibility of a bounce-back in the indices."

The CME FedWatch Tool suggests a 97 percent probability that the FOMC will trim the target rate by 25 basis points to a range of 4.25-4.50 percent from the current 4.50-4.75 percent.

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According to Jain, while markets have largely priced in the expected rate cut, the spotlight will be on the Fed's post-decision commentary. "The key question is whether the commentary will be hawkish or dovish and whether further rate cuts are expected," she said.

She added, "Even if the anticipated rate cut doesn't happen—though that seems like a less likely scenario—the Fed's commentary will play a crucial role."

Adding to the subdued sentiment were FIIs selling over the last two sessions and a depreciating rupee.

Foreign institutional investors offloaded Rs 6,689 crore in the cash market across the last two sessions. VK Vijayakumar, Chief Investment Strategist, at Geojit Financial Services, said that the trend of FII buying in early December has proved to be, as feared, 'a flash in the pan'.

The stark divergence in performance between U.S. and Indian equities is a key factor for the FIIs selling Indian equities. While the S&P 500 has surged over 27 percent year-to-date, the Nifty has risen a little over 11 percent.

Adding to the pressure, the rupee depreciated to an all time low of 84.94 against the US dollar. India's trade deficit, which swelled to $37.84 billion in November, has played a pivotal role, compounded by US tariffs and trade restrictions steering global investors away from emerging market currencies.

"A dovish tone could push the dollar index lower, providing relief for the rupee," said Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities. "However, any uncertain or hawkish remarks may strengthen the dollar and keep participants bearish on the rupee."

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On the sectoral front, ten of the 13 major sectoral indexes fell. Financial services bore the brunt of selling pressure, with HDFC Bank and ICICI Bank slipping 1.3 percent and 1.6 percent, respectively. Banking indices, including Nifty Bank, Nifty PSU Bank, and Nifty Private Bank, declined between 1-2 percent. The metals sector also faced a sharp pullback, as shares of JSW Steel, NMDC, and Tata Steel tumbled 0.5-6 percent, dragging the Nifty Metal index down 1.3 percent.

In contrast, healthcare, FMCG, and IT stocks stood resilient, eking out modest gains despite the broader market downturn.

Wipro, TCS, and HCLTech gained 0.5-1 percent, boosting the Nifty IT index, which had been under pressure for the past two sessions. Nifty Pharma emerged as a strong outperformer, climbing over 1 percent in a bearish market, supported by gains of 0.5-5.5 percent in Dr Reddy's, Mankind Pharma, and Sun Pharma.

The broader indices mirrored the benchmark trend, with both the BSE Midcap and BSE Smallcap indices slipping 0.6 percent and 0.7 percent, respectively.

Three IPOs—Vishal Mega Mart, MobiKwik, and Sai Life Sciences—made their debut on Dalal Street today.

Shares of One MobiKwik Systems, the parent company of the fintech platform MobiKwik, had a spectacular listing, debuting at Rs 440—a 58 percent premium to its issue price. The stock hit its upper circuit and closed at Rs 530.70 on the BSE, up 20 percent from its listing price.

Also Read | Why Nifty lost 600 pts in 3 days ahead of US Fed decision, and how markets may move till next RBI MPC meet

Vishal Mega Mart also impressed with a strong debut on the NSE, opening at Rs 104, a 33.3 percent premium over its issue price of Rs 78. By the end of the session, the stock surged further to close 43 percent higher at Rs 111.90.

Sai Life Sciences saw a solid but relatively modest start, listing at Rs 650 on the BSE, reflecting an 18.4 percent premium over its issue price of Rs 549. The stock gained momentum through the session to close 16 percent higher at Rs 765.

Jigar Patel, Senior Manager of Equity Research at Anand Rathi Shares & Stock Brokers, said that the long-short ratio of FIIs suggests the market is in an extremely oversold zone and there is a potential for rebound following the FOMC announcement.

"We expect a recovery in Nifty 50 around 24,150-24,000 levels and in case Nifty falls below 24,000, it can support at 23,800. Additionally, there's a immediate resistance at 24,500 followed by 24,850," Patel said.

Tata Motors, Power Grid, Bharat Electronics, NTPC, and JSW Steel led the laggards on the Nifty 50, each shedding 2-3 percent. On the flip side, Trent, Dr. Reddy's, Cipla, Wipro, and Bajaj Auto emerged as the top gainers, posting gains of 0.7-2.5 percent.

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