Domestic benchmarks Nifty 50 and Sensex opened with sharp cuts on December 19, echoing negative global cues as the US Federal Reserve slashed the key lending rate by 25 basis points, but took a more hawkish tone on the monetary policy easing cycle for 2025.
Clearly, the global markets weren't too happy with the US central bank as frontline indices across the world traded deep in the red. Ahead of the opening bell in India, GIFT Nifty futures cracked 300 points, indicating that traders were in for a bumpy session and a gap-down opening.
At 9.15 am, the Sensex was down 717.57 points or 0.89 percent at 79,464.63, and the Nifty was down 217.10 points or 0.90 percent at 23,981.75.
All the sectors traded in the red, with the Nifty IT, Nifty Auto and Bank Nifty indices bearing most of the brunt of the selling, falling up to two percent. Fear gauge India VIX spiked 2.5 percent to 14.74. Wipro, Hindalco and Infosys were the top losers on the Nifty 50, dragging the index.
IT stocks witnessed sharp selling as investors rushed to offload their holdings as the further rate cuts hopes are diminished, capping the tailwinds for the services export-oriented sector.
As a result of the increased uncertainty on the global and domestic fronts, experts suggest that investors take a stock-specific approach. In conversation with Moneycontrol, Kranthi Bathini, Equity Market Strategist at WealthMills noted that most of the disappointment was coming in from the US Federal Reserve's dot plot, which foresaw interest rate cuts to the tune of 50 basis points for 2025, which was shallower than expected.
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Critical Levels to Watch
Over the past three sessions, the markets have seen heightened selling pressure. The key level to watch for in trade would be the 24,000-mark on the Nifty 50. "The markets have more or less bottomed-out. However, if the index slips below the level, we could see further weakness, but in the near- to medium-term, the outlook for the markets is positive," Bathini said.
If the Nifty 50 tumbles under the key level, a major support to watch is the low of the December series at 23,923, with the 200-DMA around 23,800 serving as another critical support level, noted Santosh Meena, Head of Research at Swastika Investmart.
FII selling and Trump-related uncertainty weigh
Foreign institutional investors have been selling relentlessly over the past few sessions, but the selling is likely to abate as the holiday season in the US approaches, causing volumes to dip. However, even if FIIs pause selling, the volatility gauge India VIX remains a cause of concern. In the previous session, it closed at the 14.37 mark, but needs to settle further, added Geojit's Head Investment Strategist, Gaurang Shah.
"The dollar index rising above 108 and the 10-year bond yield spiking to 4.52 percent are clearly negatives from the perspective of FII fund flows. But this is likely to be only temporary," V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services added.
While it looks like there will be a shallow easing cycle for 2025, the picture on the cards might have to be redrawn once President-elect Donald Trump assumes office in January, 2025. If the threats of the tariffs comes to fruition, the inflation narrative in the US might see a drastic change, surging sharply, as the cost of goods will skyrocket.
As a result, the Federal Reserve Chair Jerome Powell might have to change his monetary policy outlook. Already, the Federal Reserve is projecting higher inflation for 2025, raising their forecast for the year to 2.5 percent, up from the 2.1 percent estimate in September.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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