The Indian stock market experienced a highly volatile trading day on Friday, characterized by a significant intraday reversal. After a sharp drop of over 1,100 points earlier in the session, the benchmark indices made a remarkable recovery, erasing most of their early losses. As of 3 PM, the S&P BSE Sensex had surged by 730.39 points, reaching a total of 82,020.35, while the NSE Nifty50 was up by 192.70 points, closing at 24,741.40. This dramatic recovery was fueled primarily by gains in the FMCG (Fast-Moving Consumer Goods) and IT sectors, both of which played a critical role in the rebound.
The market opened on a negative note, weighed down by several factors including the ongoing selling by foreign institutional investors (FIIs), who had offloaded equities worth Rs 3,560.01 crore on Thursday. This selling pressure continued on Friday as FIIs took profits amid growing concerns about market overvaluation in relation to global peers. Adding to the selling pressure was the Indian rupee’s continued weakness. On Thursday, the rupee hit an all-time low against the US dollar, further affecting investor sentiment. The persistent FII outflows and rising onshore forward premiums were the key factors contributing to this downward movement in the rupee.
The negative sentiment surrounding the rupee was further exacerbated by a backdrop of global economic trends. The US dollar had remained strong due to robust economic data from the United States, and this contributed to the rupee’s depreciation. In addition, concerns over inflation in India were evident, particularly after the release of the retail inflation figures for November, which came in at 5.5%. Although this was within the Reserve Bank of India’s (RBI) target band, the elevated food prices continued to be a significant concern for both the central bank and investors. This has led to increased speculation that any interest rate cuts by the RBI might be delayed.
Shaktikanta Das, the former RBI Governor, had earlier cautioned that while inflation remains within acceptable levels, the sustained pressure from food prices could delay any monetary policy easing. This uncertainty surrounding the central bank's actions has contributed to the broader market volatility, with investors wary about the potential for further tightening of monetary policy.
Despite these concerns, the market staged a strong recovery as the day progressed. The initial sharp sell-off, which saw declines across nearly all sectors, was reversed, and investor sentiment turned positive. The FMCG and IT sectors, which have historically been seen as defensive, emerged as the leaders in this rebound. Investors shifted their focus toward these relatively stable sectors, which helped support the indices' recovery. Notably, these sectors have been more resilient compared to others, given their lower sensitivity to macroeconomic fluctuations.
Concerns over valuation have also been a significant theme for market participants. While Indian equities have shown robust growth over the past few years, there has been growing unease about their overvaluation compared to global benchmarks. A number of investors have been booking profits in anticipation of a market correction. This profit-taking was particularly pronounced in sectors like banking, metals, and real estate, which have been more vulnerable to economic pressures such as rising interest rates and global commodity price fluctuations.
In terms of market technicals, analysts are closely watching key support and resistance levels. The Nifty50 is taking support at its 50-day moving average, which currently stands at 24,300. The next level of support is seen at 24,150, corresponding to the 21-day moving average. On the upside, the immediate resistance for the Nifty50 is placed at 24,860, and a breakout above this level could signal further upside potential. The volatility index (India VIX) surged by 7.7% to reach 14.20 earlier in the day, reflecting the heightened level of fear and uncertainty among market participants.
As the market continues to navigate the current phase of volatility, global macroeconomic factors are expected to play a crucial role in determining the outlook for Indian equities. Rising bond yields and the strong US dollar are expected to remain significant headwinds for the market, especially if global economic conditions continue to remain challenging. At the same time, the Indian economy is showing signs of resilience, with inflation coming within the RBI's target band, which could help mitigate some of the downside risks.
Looking ahead, it will be important for investors to monitor any potential developments in the global economic landscape, particularly in the US and other developed markets. Any changes in the outlook for interest rates, inflation, or growth could have a significant impact on investor sentiment and stock market performance in India. Additionally, domestic factors such as corporate earnings and inflation trends will also be key to determining the direction of the market in the short term.
Despite the ups and downs of Friday's trading session, market analysts remain cautiously optimistic about the long-term outlook for Indian equities, especially given the country's robust growth prospects. However, the path forward is likely to be characterized by volatility, as both global and domestic challenges continue to impact market sentiment. As such, investors are advised to remain vigilant and stay updated on the latest economic data and market trends.
