Sensex drops 850 pts, Nifty below 22,600, hits 8-month low on US growth concerns; Nifty IT sinks nearly 3%

The Nifty IT index emerged as the biggest laggard among the sectoral indices on the NSE on Monday, suffering a sharp decline of over 2% during the early hours of trading. The selloff in IT stocks was triggered by drop in the tech-heavy Nasdaq index on Friday's trading session on Wall Street amid growing concerns about a potential slowdown in the US economy. The broad-based selloff in the Indian IT sector saw all ten constituent stocks in the red, with L&T Technology Services leading the fall, plunging by 5.55%. Following closely were Persistent Systems, which dropped 4.11%, and Mphasis, down by 3.79%.

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Sensex and Nifty extended their losing streak to a fifth straight session, plunging to an eight-month low on February 24, as a global market sell-off rattled investor sentiment. Wall Street tumbled on Friday on mounting concerns over softening consumer demand and the looming threat of fresh U.S. tariffs. U.S. consumer sentiment hit a 15-month low in February, with inflation expectations surging due to President Donald Trump’s proposed trade policies. Most Asian markets mirrored the slump.

At close, the Sensex was down 854 points or 1.1 percent at 74,456 and Nifty was down 243 points or 1.1 percent at 22,552. Both indexes have now shed over 13 percent from their record highs in late September 2024, weighed down by fears of slowing earnings growth and escalating trade tensions. On the NSE, 663 shares advanced while 1,981 declined.

Prashanth Tapse, Senior VP (Research) at Mehta Equities, pointed to weak Asian cues and a sharp fall in U.S. markets on February 21, along with Trump's retaliatory tariff threats and persistent foreign fund outflows, as key drivers of the downturn. "There are fears that the US is returning to stagflation, which could hurt global growth prospects, already undergoing a slowdown phase," he said.

Stagflation—marked by slowing growth and rising prices—in the world’s largest economy is a troubling sign for India’s export-driven sectors, particularly IT. It also makes India and other emerging markets less attractive to foreign investors, who may pivot toward safer assets like the dollar and U.S. treasuries.

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Foreign investors have been offloading Indian equities at a rapid pace. In February alone, foreign institutional investors (FIIs) have net sold stocks worth Rs 36,977 crore, while domestic institutional investors (DIIs) have stepped in, net buying shares worth Rs 42,601 crore.

Beyond FII selling, the meteoric rise in Chinese stocks has emerged as another headwind. "The 'Sell India, Buy China' trade may continue for some time since Chinese stocks continue to be attractive," pointed out V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

"Since October 2024, India's market cap has fallen by about $1 trillion, while China's has risen by $2 trillion," said Vaibhav Porwal, Co-Founder at Dezerv. "Data from NSDL shows that Foreign Portfolio Investors (FPIs) pulled out approximately Rs 25,000 crore from Indian equities in January 2024 alone, in sharp contrast to the substantial inflows of over Rs 1.7 lakh crore in 2023."

Porwal attributed these outflows to multiple factors, including India’s premium valuations and China’s economic resurgence. "China has taken steps to stabilise its economy, including rate cuts, property sector support, and liquidity injections. These moves have helped restore investor confidence, particularly after prolonged policy tightening. The Chinese stocks have also been heavily discounted due to geopolitical tensions and regulatory uncertainties," he explained.

Despite the near-term volatility, Porwal remains optimistic about India’s long-term prospects. "FII flows could return to India in the next 3–6 months, as the economy and macro factors in the long term are favourable. Strong domestic demand, digital transformation, and infrastructure push are long-term drivers that are likely to bolster corporate earnings and sustain growth."

Also Read | Nifty Auto recovers 1% from day's low as concerns over Tesla's India entry ease

Coming back to today’s session, the IT sector bore the brunt of the sell-off, with the Nifty IT index plunging almost 3 percent, dragged down by Infosys and TCS.

Sectoral performance remained bleak, with 11 out of 13 major sectoral indices in the red. Nifty Auto and Nifty FMCG were the only gainers.

The Nifty Metal index faced selling pressure, slipping over 2 percent after a strong five-session winning streak. Weak global sentiment weighed on the sector, dragging down Vedanta, Tata Steel, and Hindalco.

On the flip side, the Nifty Auto index staged a sharp recovery, bouncing back over 1 percent from its intraday low to close 0.2 percent higher. Auto stocks rebounded after a steep selloff, fueled by persistent concerns over Tesla's entry into the Indian market.

Meanwhile, the Nifty FMCG index bucked the broader market trend, gaining 0.4 percent, supported by strong performances from Varun Beverages, United Spirits, and ITC.

Broader markets fared no better, with the BSE Midcap index slipping 0.7 percent and the BSE Smallcap index declining 1.3 percent.

On the Nifty 50, Bharti Airtel, TCS, Infosys, HCLTech, and Wipro were the worst performers, sliding 2 to 4 percent. Meanwhile, Hero MotoCorp, Nestle, Dr Reddy’s, Eicher Motors, and M&M bucked the trend, gaining between 0.5 and 1.5 percent.

Shares of NTPC Green Energy, the recently listed subsidiary of NTPC, plunged 6 percent, extending its losing streak for a second straight session as the expiry of its three-month shareholder lock-in period triggered a wave of selling.

InterGlobe Aviation continued its rally for a sixth consecutive session, climbing to Rs 4,543 per share, marking a 7 percent gain over the period. Citi analysts placed the stock on a 90-day positive catalyst watch, raising the target price to Rs 5,200 from Rs 5,100 while maintaining a "buy" rating.

Healthcare Global Enterprises rose over 2 percent after private equity firm KKR announced plans to acquire a $400 million stake in the company.

"The underlying trend of Nifty continues to be negative," said Nagaraj Shetti, Senior Technical Research Analyst at HDFC Securities. "There is a possibility of more weakness down to the next support of 22400 levels in the short term." He added that the immediate resistance stands at 22,750.

Last week, the Sensex and Nifty struggled under selling pressure, particularly in auto and financial stocks. A sharp sell-off on Wall Street, concerns over Trump’s tariffs, persistent U.S. inflation, and the Fed’s cautious stance on rate cuts all contributed to investor jitters. Meanwhile, a renewed global appetite for Chinese stocks has led to a shift in foreign fund flows, further weighing on Indian equities.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.