Benchmark stock market indices experienced a sharp decline on Monday after initially opening higher, with the sell-off primarily driven by weakness in PSU banking sector stocks. The S&P BSE Sensex dropped by 760.98 points, reaching 78,462.13, while the NSE Nifty50 fell by 254.70 points to 23,750.05 as of 11:20 AM. The decline reflected a broader sentiment shift in the market, despite an early surge in investor optimism.
The early gains had been driven by sectors such as IT and consumer durables, which showed strength as investors sought refuge in safer, more defensive stocks amidst ongoing macroeconomic uncertainties. However, the optimism was short-lived as broader market concerns started to weigh in, particularly surrounding the pressures from external economic conditions. Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, pointed out that the market continues to be under pressure due to a combination of negative global economic factors impacting Foreign Institutional Investor (FII) flows and some underlying positive domestic trends that could provide support.
Dr. Vijayakumar stressed that the external macroeconomic environment remains unfavorable, with the dollar index currently at 109 and the 10-year US bond yield standing at 4.62%. These factors have been putting a strain on FIIs, and as a result, foreign investors are likely to continue their selling activity in the market until there is a decline in bond yields and a stabilization of the dollar. This persistent outflow of foreign capital continues to impact the market's overall direction, putting pressure on investor sentiment.
Despite these headwinds, there are still some positive domestic factors that could act as a counterbalance. Dr. Vijayakumar highlighted that the December auto sales numbers suggest that concerns about a deceleration in urban demand were likely exaggerated. While there were fears of a slowdown in consumer spending, particularly in urban markets, the data indicates resilience in these sectors, which could support the market during any downward movements. He noted that buying could return in these resilient domestic segments, particularly in the auto, FMCG, and other consumer-driven sectors, which are expected to remain relatively unaffected by the global headwinds.
The market's negative trend was further exacerbated by the performance of PSU banking stocks, which have been underperforming for some time now. Concerns about the asset quality of state-owned banks, coupled with sluggish loan growth, have led to persistent selling pressure in this sector. Investors seem cautious about the sector’s growth prospects, particularly given the prevailing uncertainty in the global economy. This heavy selling in PSU bank stocks has contributed to the broader market decline, amplifying the negative sentiment and overshadowing gains in other sectors. The market also saw continued pressure on other financials, metals, and oil & gas stocks, which remain vulnerable to both global economic factors and domestic challenges.
While the market has faced significant pressure in the first half of the trading session, Dr. Vijayakumar remains cautiously optimistic about the domestic outlook. He emphasized that sectors linked to strong consumer demand, such as autos, FMCG, and select financials, could be key drivers of growth and may continue to show strength even as broader market sentiment remains volatile. He also noted that once the external macroeconomic environment stabilizes, particularly with the decline in bond yields and a potential reversal in the dollar's strength, the market could see a rebound, supported by these resilient domestic segments. Therefore, while the outlook remains uncertain in the short term, there is potential for recovery if the positive domestic momentum is able to outweigh the ongoing external pressures.
