Nifty, Sensex extend losses on hawkish Fed commentary, wipe out Rs 10.5 lakh crore in four sessions

Three Nifty 50 constituents - Nestle India, Asian Paints, and IndusInd Bank - hit their respective 52-week lows in trade today.

It seems like Santa Claus is staying away this December, as frontline indices Nifty and Sensex slid for the fourth consecutive session on December 19, falling over three percent over the week so far, erasing over Rs 10.5 lakh crore in investors' wealth.

The Nifty 50 gave up the 24,000 mark, while Sensex crashed 1,000 points. An interesting statistic emerged, the Nifty 50 has given the same returns over the past one month as it has over the past six months: rising a mere 1.8 percent on both counts.

At close, the Nifty 50 was at the 23,952-mark, lower by 247 points or 1 percent. Similarly, the 30-share Sensex settled at 79,218, down 964 points or 1.2 percent.

Experts had raised caution on Nifty breaching the 24,000 mark. However, bulls defended the next support level of 23,923, which is the low point of the December series.

Also Read: MC Explains | What is the US Fed dot plot and why does the market watch it so closely?

An oft-iterated quip, "When the US sneezes, the rest of the world catches a cold," has proven itself true once again. With the hawkish commentary coming in from the US Federal Reserve Chairperson Jerome Powell, global markets were quick to liquidate and sell-off their holdings. While the mother market sank into the red, Japan, South Korea, Hong Kong and China followed. Instead of bucking the trend, domestic benchmarks took a tumble as well.

To be fair, the Federal Reserve did act on expectations: the key lending rate in the US was slashed by 25 basis points to the 4.25-4.5 mark. So then why the mayhem? As always, inflation.

The Federal Reserve revised its expectations on inflation for 2025, raising their forecast for the year to 2.5 percent, up from the 2.1 percent estimate in September. Further, the dot plot indicated that the easing cycle will lead to only two rate cuts next year, instead of the anticipated 75-100 basis points.

"While the decision was widely expected, the forward guidance surprised markets, as Fed Chair Jerome Powell indicated expectations for two additional cuts in 2025," said  Ravi Singh, SVP- Retail Research, Religare Broking. Powell emphasised the Fed’s commitment to economic stability but cautioned that inflation may take one to two years to return to the 2 percent target. "This more measured approach, contrasting with earlier expectations of aggressive easing, unsettled markets and triggered significant volatility," Singh added.

Although the rate cut may cause short-term liquidity concerns, Singh believes its long-term impact is expected to be limited, reflecting the Fed’s careful balancing act in navigating economic uncertainties.

Despite that, gold prices tumbled two percent in trade as well, owing to the Federal Reserve's hawkish tone. On the flip side, the US 10-year yield to rose to 4.45 percent, and the US Dollar Index hit a two-year high of 108.3.

The broader markets capped losses, with the Nifty Midcap 100 falling 0.3 percent, while the Nifty Smallcap 100 index fell around half a percent. On the sectoral front, banking, metal and tech stocks led losses.

Vinod Nair, Head of Research, Geojit Financial Services highlighted that sectors sensitive to interest rates, such as banking and real estate, significantly bore the brunt. "Investor caution persisted amid ongoing FII selling, with a strategic shift towards defensive sectors like pharma as evidenced by their outperformance," Nair added.

Going ahead, Ajit Mishra, SVP, Research, Religare Broking sees the next key support for the Nifty at the 200-day exponential moving average (DEMA) around the 23,700 level. "A break below this could lead to further downside for the index. Despite the weakness, oversold conditions and resilience in select pockets present stock-specific buying opportunities," Mishra said.

Infosys, LTIMindtree, and other technology stocks were among the biggest losers in the session. Since the domestic information technology sector is heavily reliant on services exports, a higher interest rate regime in the US sends bond yields spiking and strengthens the dollar, increasing the cost of IT services for US clients and potentially dampening demand.

Shares of pharma stocks emerged as outliers in a weak market, with prominent names like Dr Reddy's Labs, Cipla, and Lupin rising 1-4 percent on December 19. Other stocks, including Laurus Labs, JB Pharma, Ipca Labs, Aurobindo Pharma, Abbott India, Natco Pharma, and Glenmark, also surged 1-5 percent.

Three Nifty 50 constituents - Nestle India, Asian Paints, and IndusInd Bank - hit their respective 52-week lows in trade today. From their respective 52-week highs, the stocks have cumulatively erased Rs 2.2 lakh crore in investors' wealth, falling up to 44 percent.

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