Indian equities faced a significant decline this week, with both the BSE Sensex and NSE Nifty experiencing their steepest drop in two and a half years. The BSE Sensex plunged by over 4,000 points across five consecutive sessions, while the NSE Nifty50 shed approximately 1,200 points, marking a nearly 5% loss for the week. This sharp fall has been attributed to several key factors, with the US Federal Reserve's hawkish signals, aggressive selling by foreign institutional investors (FIIs), and concerns over high valuations in the Indian stock market playing major roles. Sluggish corporate earnings growth has further dampened market sentiment, lowering hopes for a quick recovery.
The Nifty, after reaching a recent high on December 13, has since lost almost 5% of its value. Analysts and investors are keeping a close watch on the situation, as the broader market correction continues to unfold.
US Federal Reserve’s Hawkish Stance
The US Federal Reserve's decision to implement a 25 basis points rate cut this week was in line with market expectations. However, the central bank’s guidance for only two rate cuts in 2025 was seen as underwhelming by many. Fed Chair Jerome Powell emphasized persistent inflation risks and revised the 2025 inflation forecast upward. This cautious stance has had a ripple effect on global markets, including India, as it signaled the Fed's reluctance to aggressively cut rates in the near term.
Vinod Nair, Head of Research at Geojit Financial Services, pointed out that disappointment over the slower-than-expected rate cuts by the Fed has negatively impacted global sentiment. He added that this bearish outlook is exacerbated in India, where concerns over high valuations and weak earnings growth persist, contributing to the ongoing selloff.
Foreign Institutional Investor (FII) Selling Resumes
Foreign institutional investors, who had been net buyers earlier in the month, have resumed selling Indian equities. Over the past four sessions, FIIs sold Rs 12,230 crore worth of Indian stocks. A stronger US dollar and attractive US bond yields, which stand at around 4.52%, have diverted funds away from emerging markets, including India. VK Vijayakumar, Chief Investment Strategist at Geojit, noted that weak earnings growth offers few incentives for FIIs to invest in India at the moment, further adding to the selling pressure in the market.
Technical Levels and Market Outlook
The Nifty’s recent fall below its 200-day moving average at 23,870 intensified the selling sentiment. On Friday, the breach of the 23,850 support level suggested the possibility of further downside, with analysts now eyeing the 23,500 mark as the next key technical level.
Investment Strategy Amid Market Volatility
While the correction has made select large-cap stocks such as ICICI Bank and HDFC Bank more attractive, experts are advising caution in the current market environment. The FMCG sector remains expensive, and with market sentiment expected to remain subdued until the Reserve Bank of India’s policy meeting in February, investors are urged to focus on high-quality stocks and adopt a more conservative approach. Patience is key, and waiting for greater market stability before making significant moves is considered a prudent strategy during such uncertain times.
In summary, the Indian stock market is experiencing significant volatility, driven by global and domestic factors. While there are opportunities in select stocks, investors should tread carefully, focusing on long-term potential and remaining vigilant to the evolving market conditions.
