Sensex settles 400 pts lower, Nifty ends below 26,100: Rupee hitting record low among key factors behind market decline

"India's distance from the overheated global AI trade also makes it a valuation hedge and gives it a shot at outperforming Asian and emerging peers in the near term," Bathini added.

Hindalco Industries, Tata Steel and Adani Ports and Special Economic Zone were among the major laggards, declining up to 2 percent, while Mahindra & Mahindra and Eicher Motors were the top gainers, rising up top 1 percent. Market breadth was negative as about 1,043 shares advanced, 2,377 shares declined and 148 shares were unchanged.

Key factors behind market decline

1) Rupee declines: The rupee saw the steepest single-day fall in over three months breaching 89-a-dollar-mark for the first time and closed the session 93 paise lower at 89.61 against the greenback on Friday, amid negative cues from domestic as well as global equity markets. Forex analysts attributed the sharp fall in Indian currency to the massive selling of global IT stocks amid risk-off sentiment.

2) Weak global cues: Asian markets were trading lower, with South Korea’s Kospi down more than 3 percent and Japan’s Nikkei 225 losing over 2 percent. Indices in Shanghai and Hong Kong also opened in the red. Overnight, US markets closed with losses, as the Nasdaq Composite dropped 2.15 percent, the S&P 500 slid 1.56 percent and the Dow Jones Industrial Average declined 0.84 percent.

Currency movements also added to the cautious tone. The yen hovered near a 10-month low but saw brief support after Japanese Finance Minister Satsuki Katayama signalled potential intervention to curb excessive volatility. The dollar, meanwhile, was on track for its strongest week in more than a month. Japan says their stimulus package will have an overall economic impact of $265 billion.

3) Fading rate cut hopes: Sentiment was further dampened by renewed uncertainty over US monetary policy. Employment data showed faster job growth in September, reducing expectations of a rate cut in December. Higher rates in the US typically reduce the appeal of emerging markets, including India, for foreign investors.

Additionally, during a talk at Georgetown University on Thursday, Federal Reserve Governor Lisa Cook did not provide a specific outlook on near-term interest-rate policy. However, she highlighted several risks to the financial system, including the rapid expansion of private credit markets, hedge fund activity in the Treasury securities market, among others.

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4) Selling in IT shares: IT stocks also faced selling pressure amid concerns over stretched valuations. Weakness in US tech shares overshadowed Nvidia’s better-than-expected quarterly results, adding to the drag on domestic technology counters.

5) India Vix declines: The India VIX, the domestic volatility gauge, rose 13 percent to 13.68, indicating heightened uncertainty among traders. A higher VIX generally reflects expectations of wider market swings and can lead to cautious positioning by participants.

Despite the early decline, analysts said the market remained close to record levels and that buying on dips could emerge later in the session, supported by an improving earnings outlook and resilient flows.

On the technical front, Anand James, Chief Market Strategist at Geojit Financial Services, said the recent move above a month-long trading range strengthened prospects of Nifty reaching 26,550 in the near term. However, he noted that Thursday’s brief move above the upper Bollinger band, followed by a close below it, suggested limited upside for the day. A failure to hold above 26,237 or a fall below 26,160 could tilt the bias in favour of bears, with downside expectations of 26,028–25,984, he added.

(With inputs from Reuters)

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