Benchmark indices Sensex and Nifty declined more than a percent on November 7 after a two-day rally, as investors moved on the sidelines, possibly to gauge the Federal Open Market Committee (FOMC) outcome later tonight.
The BSE Sensex declined 1.19 percent or 958.79 points to its intraday low of 79,419.34 at around noon. The NSE Nifty dropped over 300 points or 1.2 percent to 24,181.95.
Nifty IT, metals, auto, financials among others contributed to the softness in trade, despite a very strong handover from US markets overnight, following Republican Presidential nominee Donald Trump's victory.
Here are the top factors that may have led to the decline:
1) FOMC Overhang: Investors remained on the sidelines ahead of the US Federal Reserve interest rate decision, where a 25 basis point rate cut is anticipated, with investors closely watching Chair Jerome Powell's remarks for insights into the future direction of the rate trajectory.
"Trump's pro- business initiative of ‘America First’ can strengthen the American economy. But if he walks his talk and imposes a 60% tariff on Chinese imports and 10-20% tariff on imports from other countries, that would trigger inflation and jeopardise the Fed’s policy of containing inflation, necessitating a rethink of the Fed’s present policy of rate cut. This has the potential to negatively impact global stock markets," said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
2) Rupee at Fresh Low: Rupee declined to a lifetime low on November 7 in the wake of expectations that Donald Trump's victory is likely to boost the dollar in the coming months.
3) Relentless FII outflows: Unabated foreign fund outflows has further dented investor sentiment. Foreign Institutional Investors (FIIs) offloaded equities worth Rs 4,445.59 crore on Wednesday, after selling a record Rs 94,000 crore in the month of October.
4) China Stimulus Hopes: Investors are closely watching China's top legislature the 14th NPC Standing Committee (NPCSC) meeting till November 8. A Reuters report said China is weighing over 10 trillion yuan in additional borrowing in coming years. The CSI 300 Index and Hang Seng were up over a percent on potential announcement of a large stimulus package at the ongoing meet.
5) Weak Earnings Overhang: Subdued September quarter results continue to weigh on the domestic markets. Some analysts have hinted that the equity market is experiencing headwinds due to a slowdown in earnings growth in some sectors.
6) Awaiting Trump's Policy Fineprint: Any anti-China stance taken by U.S. President-Elect Donald Trump could potentially benefit India, since it may open up new opportunities for trade and strategic collaboration between the two countries. However, Trump has also criticised India for high tariff rates, and has shown a willingness to impose tariffs on Indian exports to the United States, which could potentially impact Indian businesses.
7) Selloff in IT Shares: After a strong rally following Trump's victory on November 6, IT stocks fell on concerns of possible protectionism under Trump's presidency, which may pose risks to the earnings of Indian IT companies catering to US clients for software exports. Mphasis, LTIMindtree, Tech Mahindra among others fell up to 2.5 percent mid-day on November 7.
Meanwhile, both the Dow and S&P 500 registered their biggest one-day percentage rise since November 2022, and the Nasdaq notched its biggest daily percentage gain since February, after the election verdict.
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