Benchmark indices Sensex and Nifty dropped for the second consecutive session on Tuesday, with 27 out of 30 Sensex stocks experiencing declines.
Despite this, the overall market sentiment was relatively stable, reflected by the number of advances versus declines.
Investors awaited the results of a two-day US Fed meeting that began today, which is expected to provide insights into economic projections for the US, the largest economy in the world.
Domestically, concerns were raised regarding a weakening rupee and significant foreign outflows, as India’s trade deficit surged to a record $37.8 billion in November, up from $27.1 billion in October, exceeding expectations of $23 billion.
Nomura India commented that the expanding trade deficit challenges the Reserve Bank of India’s strategy for foreign exchange intervention, which has aimed to limit the depreciation of the rupee. A wider trade deficit might necessitate a slight weakening of the currency, potentially serving as an automatic stabilizer to reduce imports, even if it does not necessarily enhance exports.
Major Asian markets fell by up to 1 percent, influenced by disappointing economic data from China and concerns that the Fed might implement fewer rate cuts than previously anticipated due to persistent inflation in the US amid the trade war, which further dampened market sentiment.
The BSE Sensex declined by 756.44 points, or 0.93 percent, settling at 80,992.13, while Nifty dropped 240.85 points, or 0.98 percent, to close at 24,427.40. Bajaj Finserv Ltd led the declines, dropping 2.09 percent to Rs 1,637.60, followed by Bharti Airtel Ltd, Power Grid, Reliance Industries, and Nestle India, all of which saw declines ranging from 1.4 to 1.8 percent.
HDFC Bank, ICICI Bank, and Reliance contributed over 300 points to the Sensex’s decline. According to ICICI Securities, the ratio of Nifty 500 to Nifty 100 has shown a breakout from six months of consolidation, indicating that the broader market may outperform in the future.
The continuation of rallies at a slower retracement pace and an improving market breadth suggests a strong price structure. They advised adopting a strategy of buying on dips. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted that global markets are keenly anticipating the FOMC outcome on Wednesday.
The markets have already priced in a 25 basis point rate cut, so the focus will be on the Fed chair’s comments. Any deviation from a dovish stance could negatively impact the market, although this is considered a remote possibility.
He also highlighted that the strong US services PMI at 58.5 indicates a resilient economy, which is promising for the market. Furthermore, he pointed out that the sharp rise in India’s trade deficit to $37.8 billion in November is likely to exert pressure on the rupee, propelling it closer to 85 per dollar.
Exporters, particularly in the IT and pharmaceutical sectors, may benefit from a depreciating currency, while importers will face increased costs.
