Investors lose Rs 3.7 lakh crore as US Fed outlook, FII selling among top factors behind market sell-off

Nearly all the sectoral indices were trading in the red with maximum decline seen in the Nifty IT, Nifty Auto and Bank Nifty which fell nearly 2 percent.

The Sensex and Nifty continued to trade lower at mid-day. At 12:30 pm, the Sensex was down 8oo points and was trading at 79,322 while the Nifty was trading around 1 percent lower at 23,973.05 on account of  US Federal Reserve’s interest rate decision. Nearly Rs 3.76 lakh crore mcap was eroded during the first half of the trading session.

Domestic benchmarks Nifty 50 and Sensex opened lower on December 19, on negative global cues.

Nearly all the sectoral indices were trading in the red with maximum decline seen in the Nifty IT, Nifty Auto and Bank Nifty which fell nearly 2 percent. Only the Nifty Pharma Index was trading in the green, up by around 1 percent.

Shares of pharma stocks including names like Dr Reddy's Labs, Cipla, and Lupin were gainers amidst the weak market rising 1-4 percent on December 19. Other pharma gainers included Laurus Labs, JB Pharma, Ipca Labs, Aurobindo Pharma, Abbott India, Natco Pharma, and Glenmark.

Top losers on the Sensex and Nifty include Asian paints, Bajaj Finance and Bajaj Finserv.

Key factors behind today’s market crash:

Hawkish US Fed:
The Fed raised its inflation forecast and hinted at fewer rate cuts for 2025, dampening investor sentiment. Although the central bank lowered the benchmark interest rate by 25 basis points to 4.25–4.50 percent, its hawkish outlook on a slower pace of easing next year sparked a sharp sell-off. Markets had anticipated 3–4 rate cuts in 2025, but the Fed's latest dot plot signaled a shallower reduction of just 50 basis points. "With the US market strongly driven by momentum, today’s reversal appears to have been the biggest panic sell in the US market since the Yen carry-trade saga. Similarly, Asian counters are likely to have an uncomfortable start," said  Dhawal Ghanshyam Dhanani, Fund Manager, SAMCO Mutual Fund

FII Selling: Foreign institutional investors have sold off holding worth Rs 8,000 crore over the past three sessions, reigniting fears that FPIs could sell holdings like they did in October. For the year so far, FIIs have net sold Rs 2.94 lakh crore worth of shares.

Rupee Falling: The pressure on Rupee was also visible in the forex market, with the currency ending at a record low of 85 to the US Dollar. The rupee has fallen by around 2% against the dollar in 2024. The November data showing a widening of trade deficit in November also added to the adverse macro sentiment.

US Dollar, US 10-year yields spike: The dollar index, which measures the US currency against a basket of six currencies, climbed a two-year high after the US Fed policy decision. The dollar index was up 0.05 percent to 108.086. This was highest level since November 2022.

"The dollar index rose above 108 and the 10-year bond yield spiking to 4.52 percent are clearly negatives from the perspective of FII fund flows. However, this is likely to be only temporary," said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

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