India’s equity market dropped sharply on Thursday, erasing the gains made on Wednesday following Republican candidate Donald Trump’s victory in the U.S. presidential election, which had initially boosted investor sentiment globally. The recent decline reflects investors’ caution ahead of the U.S. Federal Reserve’s critical monetary policy decision, set to be announced late Thursday.
The dip in Indian equities was intensified by weak Q2FY25 earnings, a decline in the Indian rupee, and persistent selling by foreign institutional investors (FIIs).
Market benchmarks Sensex closed 836.34 points or 1.04% lower at 79,541.79, and the Nifty settled 284.70 points or 1.16% lower at 24,199.30. The broader markets also settled in the red, with Nifty Midcap100 and Nifty Smallcap100 falling 0.43% and 0.75%, respectively.
“The fall can be attributed to continuing foreign fund outflows after the rupee slumped to fresh lows following strength in the US dollar. Investors restricted their equity bets ahead of the US Fed's policy announcement as they are unsure of the rate cut this time on concerns of a likely uptick in inflation,” said Prashanth Tapse, Senior VP (Research), Mehta Equities.
This is the first meeting outcome of the Fed following the closely contested US election. The chair is expected to deliver 25 basis points of rate cuts in this meeting.
“All cyclical sectors came under selling pressure and some more weakness could be in store in the near term. Global equities were mostly higher buoyed by a record rise for U.S. shares overnight, with the focus on policy decisions from the Federal Reserve and other major central banks, including the Bank of England (BoE), later in the day,” said Deepak Jasani, Head of Retail Research at HDFC Securities.
The fall in Indian equities came despite Dow Futures surging by 1,100 points while Russell 2000 futures jumped 4% on Wednesday.
European markets also surged tracking US poll results. China’s Shanghai Composite and Hang Seng advanced about 2% each on Thursday.
Jasani said that Asian equities, excluding China, witnessed sharp foreign outflows in October ($15.38 bn - largest monthly net sales since June 2022), as investors wary of the US presidential election outcome reacted to concerns over weaker-than-expected corporate earnings, overvalued stocks and rising bond yields. India alone saw foreign institutional investors (FIIs) selling shares worth a whopping $11.2 billion in October.
The selling pressure among large caps was so intense on Thursday that 46 out of 50 Nifty50 constituents ended in the red. Hindalco, Trent, Grasim, Shriram Finance, and Adani Enterprises fell up to 8%. Among sectoral indices, the Nifty Metal index cracked 2.73%. Auto, Pharma, Realty, and Healthcare indices also fell over 1% each.
More pain ahead?
Osho Krishan, Senior Analyst - Technical & Derivatives, Angel One, said that as the benchmark index declined, a sense of uncertainty returned. “From a technical standpoint, 24000 is likely to be seen as intermediate support and might cushion any intraday blips, followed by the sacrosanct support of 23900-23800 in the comparable period. On the higher end, 24400-24500 remains a daunting task for the bulls, and until a sustainable breach takes place, we might witness a continuation in the sideways movement for Nifty,” stated Krishan.
“As we move forward, it is beneficial to stay informed about the overnight developments regarding the FOMC outcome, as these insights will likely shape the intermediate market trend. Furthermore, it is prudent to exercise caution considering the growing uncertainty permeating the market, which could lead to unpredictable fluctuations,” added Krishan.
Hrishikesh Yedve, AVP of Technical and Derivatives Research at Asit C. Mehta Investment Interrmediates, said that technically, on a daily basis, the index formed a red candle, suggesting weakness.
“Thus, 24500 will serve as the index's initial hurdle for the index, followed by 24700. However, the index continues to respect 150-Days exponential moving average (DEMA) support near 23,990, as well as recent swing support near 23,800. In the immediate term, we expect the index will consolidate in the range of 23,800 to 24,700. A decisive breakout on either side will determine the next direction of the index. Until then, traders should aim to buy near support and sell near resistance,” added Yedve.
