India's equity markets fell sharply on Tuesday as investors rushed to book profits amid weak global cues and sustained foreign institutional investor (FIl) outflows. The benchmark BSE Sensex plunged 872.98 points (1.06%) to close at 81,186.44, while the NSE Nifty dropped 261.55 points (1.05%) to settle at 24,683.90.
The sell-off was broad-based, with the Nifty MidCap and Nifty SmallCap indices declining 1.6% and 1%, respectively. Sectoral indices were firmly in the red, with Nifty Auto, Bank, Pharma, and FMCG slipping 1-2%, reflecting widespread selling pressure.
The selloff eroded investors' wealth by over Rs 6 lakh crore on Tuesday as the overall market capitalisation of BSE-listed firms dropped to nearly Rs 438 lakh crore from nearly Rs 444 lakh crore in the previous session.
The downturn was triggered by weak global sentiment after Moody's downgraded the US government's credit outlook last Friday, sparking a sell-off in US equities on Monday. Additionally, a resurgence in COVID-19 cases in parts of Asia-including Singapore and Hong Kong-dampened market sentiment, even as India reported only 257 active cases as of May 19.
Pranay Aggarwal, Director & CEO of Stoxkart, said that the ongoing Q4 earnings season, expected to shape market sentiment, contributed to the hesitancy.
“Negative cues from downgraded US market futures and Moody’s downgrade of the US credit rating further eroded confidence. Uncertainty over India-US trade agreement talks added to the cautious sentiment,” added Aggarwal.
With a lack of major positive triggers and prevailing uncertainty over U.S. fiscal stability, investors opted for profit-booking and adopted a cautious stance, said Vinod Nair, Head of Research, Geojit Investments.
“Selling pressure was widespread as participants awaited more clarity on the India-U.S. trade agreement. Given the current premium valuations and delays in the trade deal, we foresee a phase of short-term consolidation, which may lead FIIs to scale back their positions in the domestic market,” added Nair. FIIs sold (net sales) Indian equities worth Rs 525.95 crore in the cash segment on May 19.