The equity benchmarks extended their losing streak for the third straight session on May 20 as weak global cues, FII selling were among the key factors that weighed on investor sentiment.
Retreating from early highs, the Sensex tanked 872.98 points or 1.06 percent to settle at 81,186.44. During the day, it dropped 905.72 points or 1.10 percent to 81,153.70. The Nifty tumbled 261.55 points or 1.05 percent to 24,683.90.
Auto and financial stocks led the decline, with Eicher Motors, Hero MotoCorp, Maruti Suzuki, Cipla and Shriram Finance among the top drags on the indices. All the 13 major sectors settled in red.
Here are the key factors that contributed to Tuesday’s market downturn:
1. Weak Global Cues: Asian markets were mostly in the red, tracking weakness in Wall Street Futures. South Korea’s Kospi was down, while US Futures also signalled a soft start on the back of Fed's hawkish commentary. Atlanta Fed President Raphael Bostic said he expects only one rate cut in 2025, suggesting continued concerns over inflation.
2. FII Outflows: Foreign Institutional Investors (FIIs) sold shares worth Rs 525.95 crore on Monday. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said markets may enter a consolidation phase with valuations already stretched. "High valuations will put a cap on the upside with institutional selling emerging on rallies," he added.
3. Sharp Fall in Japanese Bonds: Japanese government bond yields spiked after a weak auction on Tuesday, sparking fresh concerns over the country's fiscal situation. The 20-year bond yield surged to its highest level since 2000, while the 30-year yield hit a record peak. Analysts said the sell-off in Japanese bonds raised borrowing costs and added to global uncertainty, impacting risk sentiment across markets.
4. Uncertainty Over India-US Trade Talks: Commerce Minister Piyush Goyal’s four-day visit to the US concluded Tuesday, with both sides attempting to stitch together a trade deal before US tariffs kick in later this month. "The market is waiting for the next major trigger. It could be an India-U.S. trade deal. It needs to be seen when it is announced," Dharmesh Kant, head of equity research at Cholamandalam Securities told Reuters.
5. Rising Global Trade Tensions: US Treasury Secretary Scott Bessent recently warned of possible tariff hikes on key trading partners. Market experts said any such measures could revive fears of a global slowdown and trigger sharp volatility in risk assets.
6. Rupee Weakens: The rupee fell 13 paise to 85.55 against the US dollar in early trade, dragged by weak domestic equities and continued foreign fund outflows. Traders pointed to rising US 10-year bond yields as a key driver of dollar strength, which in turn pressured emerging market currencies, including the rupee.
7. Moody’s Cuts US Debt Outlook: Global ratings agency Moody’s has downgraded the outlook on US sovereign debt, citing concerns over long-term fiscal discipline. While not an immediate threat, the move has added to risk-off sentiment globally. “This downgrade has created an undercurrent of unease in financial markets,” said Vijayakumar, adding that investors are growing cautious amid heightened uncertainty.
8) Covid Surge: Investor mood has turned cautious as Covid-19 cases are rising again, especially in major Asian cities like Hong Kong and Singapore. India has also begun to see a gradual increase, with 164 new cases reported since May 12. The country now has 257 active cases, with Kerala, Maharashtra and Tamil Nadu reporting the highest numbers.
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