A cocktail of concerns—a higher-than-expected trade deficit weighing on the rupee, nervousness ahead of the US Fed FOMC meeting, and a slowdown in Chinese retail sales—rattled investor sentiment today. The Sensex tumbled over 1,000 points or 1.3 percent to close at 80,684.45, while the Nifty shed over 330 points or 1.4 percent to end at 24,336.
Sector-wise, financials, oil & gas, and IT weighed on Nifty but HDFC Bank, RIL, and Bharti Airtel were the primary culprits. All three stocks combined contributed to over 100 points of decline in the Nifty 50 index. About 1497 shares advanced, 2360 shares declined, and 85 shares unchanged.
"The FOMC meeting is a key factor affecting the market right now. Investors are closely watching this meeting, awaiting its outcome, which is adding pressure to the market," said Anita Gandhi, Whole-Time Director at Arihant Capital Markets.
Adding to investor caution, India's merchandise trade deficit widened to $37.84 billion in November from $27.14 billion in October, exerting pressure on the rupee. The Indian rupee touched a record low of 84.93 against the US dollar, further unnerving foreign investors already concerned about the rising dollar index. The rupee has remained under pressure for several months due to sustained foreign investor outflows and a strong dollar, depreciating 2.01 percent year-to-date against the greenback.
Commenting on the rupee's impact, V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said, "Exporters like IT and pharma will benefit from depreciating rupee and for importers the import cost will increase."
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On the global front, China's retail sales rose by 3 percent in November from a year ago, according to National Bureau of Statistics data released on December 16, missing the forecast of 4.6 percent in a Reuters poll. This was seen as a sign that Beijing's efforts to boost the economy have failed to revive sluggish demand.
Reuters reported that Chinese leaders have agreed to raise the budget deficit to 4 percent of GDP next year—the highest on record—while targeting economic growth of around 5 percent. Though not officially announced, the additional spending, equal to 1.3 trillion yuan ($179.4 billion), will be financed through off-budget special bond issuances.
The Asia-Pacific markets appeared underwhelmed by the news, with almost all Asia-Pacific indices falling between 0.1 and 2 percent.
Back home, the financial sector faced additional pressure as HDFC Bank shares fell over 1 percent following a warning letter from SEBI, alleging non-compliance in disclosures regarding the resignation of a senior employee. The Nifty Bank, Nifty Private Bank, and Nifty PSU Bank indices dropped over 1 percent each, with Axis Bank and ICICI Bank contributing to the weakness.
Despite the rupee's depreciation, export-heavy Indian IT stocks failed to gain traction. The Nifty IT index slipped 0.7 percent, weighed down by losses in TCS, Infosys, and LTIMindtree, which declined 0.5-2 percent.
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The BSE Smallcap and BSE Midcap indices, which held firm in early trade, succumbed to selling pressure in the second half, falling 0.5 percent and 0.7 percent, respectively.
Investors now await the Federal Reserve's policy decision on December 18, where a 25-basis-point rate cut is almost certain, with odds standing at 97 percent, as per the CME FedWatch tool. More importantly, markets are bracing for Federal Reserve Chair Jerome Powell's commentary on the trajectory of interest rates, which could dictate sentiment in the days ahead.
Top losers on the Nifty 50 index included Shriram Finance, Grasim, Bharti Airtel, Hero MotoCorp, and JSW Steel, falling between 2-5 percent. Meanwhile, Cipla emerged as the sole gainer, rising 0.2 percent. The stock climbed over 2 percent intraday after Kotak Institutional Equities upgraded it to ‘Buy’ from ‘Add’, citing attractive valuations, upcoming US launches, domestic recovery expectations, and healthy growth prospects in South Korea.
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