CHENNAI: India's equity markets began the week on a cautious note, closing sharply lower on Monday as a mix of global and domestic triggers weighed on investor sentiment. The BSE Sensex slipped 271 points from its intraday high to settle at 82,259, while the NSE Nifty fell below the psychological 25,000 mark, reflecting broad-based weakness across sectors.
According to the market watchers the following were the key drivers of the market decline:
1. Moody’s Downgrade of US Sovereign Rating
Moody’s Investors Service downgraded the United States’ long-term credit rating from Aaa to Aa1, citing concerns over the country’s growing debt burden, which has now exceeded $36 trillion. This move follows earlier downgrades by S&P in 2011 and Fitch in 2023, making Moody’s the last of the “Big Three” agencies to take a cautious stance on U.S. sovereign debt.
The downgrade triggered a risk-off sentiment globally, prompting a pullback in equities and a flight to safer assets.
2. Rising US Treasury Yields
In a further sign of investor unease, the yield on the benchmark 10-year US Treasury note rose to 4.52%, while the 30-year yield breached 5%—levels not seen since April. Rising yields increase borrowing costs and can weigh on equity valuations, especially for high-growth sectors such as technology.
3. Weak Global Market Cues
Global equity markets were under pressure. Asian indices, including Japan’s Nikkei 225, South Korea’s Kospi, China’s Shanghai Composite, and Hong Kong’s Hang Seng, all closed in the red.
European markets opened lower, reacting to mixed data from China and the US. US futures were weak, with S&P 500 futures down 1% and Dow futures off 0.7%, hinting at a subdued Wall Street open.
4. IT Stocks Under Pressure
The IT sector led the losses on Dalal Street, declining over 1 percent, as concerns mounted about the sector’s revenue exposure to the US market. Major IT heavyweights including Infosys, TCS, and Tech Mahindra saw sharp declines.
The IT sector contributes 11.11% to the Nifty 50’s total weightage, making its underperformance a significant drag on the broader index. Investors fear that any slowdown or policy uncertainty in the US could dampen IT sector earnings, especially with the macroeconomic outlook now clouded.
5. Market Volatility on the Rise
The India VIX surged 11 percent to 19.81, signaling a spike in market volatility and investor nervousness. A high VIX often precedes broader market swings and reflects uncertainty around short-term direction.
6. Institutional Activity Hints at Derivatives Caution
Despite net institutional inflows of ₹14,018 crore from Foreign Institutional Investors (FIIs) and Domestic Institutional Investors (DIIs), the market still declined, suggesting that FIIs are building short positions in the derivatives segment.
Top Nifty Drags
On Monday, the losers in Nifty included Infosys, Tata Consultancy Services, Grasim Industries, Eicher Motors, Tata Consumer Products
Market Outlook
Volatility is expected to remain elevated in the coming sessions as global investors recalibrate expectations post the US rating downgrade. Domestically, pressure on export-dependent sectors like IT may persist amid rising global yields and a cautious outlook on the US economy.
Stock analysts suggest that investors will remain cautious, and they will focus on quality stocks with strong fundamentals. And it is wise to keep an eye on key global developments, especially US economic data and Federal Reserve commentary, they say.