The equity benchmarks settled lower on Thursday as the lack of clarity on the future course of rate action by the US Federal Reserve dampened investor sentiment. Fresh foreign fund outflows also weighed on the markets.
The Sensex tanked 592.67 points or 0.7 per cent to settle at 84,404.46. During the day, it dropped 684.48 points or 0.8 percent to 84,312.65. The Nifty tumbled 176.05 points or 0.68 percent to
Dr. Reddy's Laboratories, HDFC Life Insurance Company, Sun Pharmaceutical Industries, Bharti Airtel and Tata Steel were the major laggards in the Nifty pack, declining up to 5 percent.
Key factors behind market decline
1) Fed signals pause after rate cut: The US Federal Reserve cut its key interest rate by 25 basis points overnight, as widely expected. However, Chair Jerome Powell indicated that further policy easing was unlikely in the near term, citing the absence of fresh economic data amid the ongoing US government shutdown. Powell’s cautious tone dampened risk appetite in emerging markets, including India.
Ross Maxwell, Global Strategy Lead at VT Markets, noted "Stocks and bond prices fell, and yields pushed higher after FED Chair Jerome Powell cut a more cautious tone than expected in his press conference, stating that there were strongly differing views and that a December rate cut was far from a foregone conclusion. He stated future decisions will be data-driven, reducing the chances of further rate cuts even further, especially if the US government shutdown continues. He also pointed to the “downside risks to employment” having risen in recent months and highlighted how sticky inflation means they must proceed with caution."
"Whilst the Fed is easing, it is doing so with caution, which could cause increased volatility in equities during the uncertainty and bond yields could push higher if the market reduces expectations of deeper cuts, he added.
2) FIIs turn net sellers: Foreign institutional investors (FIIs) sold shares worth Rs 2,540.16 crore in the equity market on Wednesday. FII outflows weighed on key indices.
3) Volatility on the rise: The India VIX, a measure of market volatility, rose 1.5 percent to 12.16, reflecting increased nervousness among traders.
Technical view
Anand James, Chief Market Strategist at Geojit Financial Services, said, "Nifty’s momentum slowed near recent peaks, with oscillators showing hesitation. However, bullish continuation patterns remain visible. Dips towards 25,990 are expected to attract buying interest, while immediate support lies near 25,886."
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