Sensex falls over 500 pts, Nifty below 23,550: Pessimism over Fed rate cut, Q3 jitters among key factors behind market decline today

Growth in the technology sector is also weak because of a slow recovery in overseas demand and though rural demand shows signs of a recovery, consumption in urban areas is muted, the brokerage said.

The equity markets in India traded lower on Thursday as the benchmark indices Sensex and Nifty declined, amid unabated foreign fund outflows, global cues and cautious investor sentiment ahead of the December quarter earnings season.

The BSE Sensex fell 513.72 points or 0.65 percent at 77,634.77, while the NSE Nifty slipped 164.75 points or 0.69 percent at 23,524.20. Key stocks including Tata Motors, Larsen & Toubro, Zomato, State Bank of India, Sun Pharma, Power Grid, Bajaj Finance, and NTPC emerged as the laggards.

Key Factors Driving Market Decline

1) Earnings Season Jitters: The earnings season officially kicks off today with Tata Consultancy Services (TCS) announcing its December quarter results. Investors remained cautious as subdued performances by Indian corporates in the previous quarter kept sentiment muted. Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, remarked, “With the Q3 results season starting today, markets will react to corporate performance. The results of TCS will provide insight into the IT sector’s outlook, especially as the U.S. economy and rupee depreciation act as tailwinds for the industry.”

The latest business updates from companies including FMCG giant Dabur India and two-wheeler maker Hero MotoCorp have not inspired confidence among investors that earnings of Nifty 50 firms will improve from the previous quarter, which was the worst in four years. "Worries of a continuation of earnings moderation in the December quarter and signals of fewer rate cuts in the US in 2025 as well as uncertainty over US policy under (U.S. President-elect Donald) Trump are all keeping domestic equities on their toes," Sanjeev Hota, vice president and head of research at Mirae Asset Sharekhan told Reuters.

2) Depreciating Rupee: The rupee fell by 1 paisa to touch a record low of 85.92 against the US dollar in early trade, marking its third consecutive session of weakness. A stronger American currency, coupled with higher crude oil prices and subdued domestic equities, exerted additional pressure. The persistent foreign fund outflows and soaring U.S. bond yields have contributed to boost the dollar's strength.

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3) Concerns Over U.S. Trade Policies: Uncertainty over the trade and tariff policies of U.S. President-elect Donald Trump, as he prepares for a second term, kept global investors wary. Markets are also bracing for the impact of upcoming Union Budget proposals.

“Expectations from Trump’s trade policies and the Budget will add to market volatility in the coming weeks,” added Vijayakumar.

4) Fading Hopes of US Fed Rate Cut: Concerns over U.S. trade and immigration policies have added to market jitters. According to a CNN report, President Trump is reportedly considering declaring a national economic emergency to justify broad-based tariffs, including a 10 percent levy on global imports and approximately 60% on Chinese goods.

These measures, coupled with plans to deport certain immigrant groups, have raised inflationary concerns among U.S. Federal Reserve officials. As a result, expectations for aggressive rate cuts have diminished. Markets are now fully factoring in just one 25-basis-point rate cut in 2025, with only a 60 percent probability of a second rate cut, dampening global investor sentiment.

Foreign Institutional Investors (FIIs) sold equities worth Rs 3,362.18 crore on Wednesday, extending their selling streak. In January alone, FIIs have offloaded equities worth Rs 10,419 crore.

“With the dollar index at 109 and the 10-year U.S. bond yield at 4.67%, FIIs are likely to maintain their selling stance, creating near-term headwinds for Indian equities,” said Vijayakumar.

Anand James, Chief Market Strategist at Geojit Financial Services, noted that while downside risks have eased, Nifty needs to reclaim 23,752 to signal a potential upmove toward 23,900–24,000 levels.

“An outright fall below 23,263 could take time to materialise, but major supports are placed at 23,000 and 22,260. For now, the hammer pattern in recent sessions offers hope for a short-term rebound,” he added.

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