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The BSE Sensex declined by 1,176 points to close at 78,041.59, while the NSE Nifty dropped 364.20 points to end at 23,587.5.
Among the 30 Sensex constituents, 27 stocks ended the day in the red on Friday.
The Indian stock market witnessed a sharp decline today, with the BSE Sensex plummeting 1,176 points to close at 78,041.59, while the NSE Nifty dropped 364.20 points to end at 23,587.5.
Despite a brief recovery around 9:45 am, the markets soon reversed course, hitting their intraday lows. Initially, IT stocks provided some relief, supported by Accenture’s strong quarterly results, but they eventually succumbed to the broader market pressure.
Among the 30 Sensex constituents, 27 stocks ended the day in the red. The worst performers included Tech Mahindra, IndusInd Bank, Axis Bank, Mahindra & Mahindra, Tata Motors, and Larsen & Toubro. On the other hand, JSW Steel, Nestlé India, and ICICI Bank managed modest gains, rising up to 0.52%.
Vinod Nair, head of research at Geojit Financial Services, “The sell-off has been widespread, with significant declines in mid- and small-cap stocks, where valuations premiumisation is at historical peak. The IT sector is notably underperforming as it was amongst the best performers in anticipation of rapid rate cuts in 2025.”
Key Factors Behind the Market Downturn:
Hawkish Stance from the US Federal Reserve
The US Federal Reserve’s widely anticipated 25 basis point rate cut this week was accompanied by a cautious outlook, dampening market sentiment. Fed Chair Jerome Powell’s emphasis on persistent inflation risks and the upward revision of the 2025 inflation forecast added to investor concerns.
“Even though Accenture’s upbeat results initially supported tech stocks, the Fed’s hawkish outlook has hurt sentiment, with FIIs continuing to pull out funds,” said Anita Gandhi, founder of Arihant Capital Markets, according to Moneycontrol.
However, Vijayakumar said, “Disappointment regarding the slower-than-anticipated rate cuts by the US Fed has adversely affected global market sentiment.“
FIIs Turn Aggressive Sellers
Foreign institutional investors (FIIs) have reversed their buying trend, selling off Rs 12,230 crore worth of Indian equities over the past four sessions. December has now seen FIIs turning net sellers.
Vijayakumar attributed this trend to the strong US dollar and attractive US bond yields.
He, however, added that the FII buying seen in early December is now reversing, with this week’s FII outflows reaching Rs 12,229 crore. Large-cap financials are bearing the brunt of this selling pressure.
“This trend may not last, and retail investors can consider adopting a contrarian approach. Quality large-caps are likely to rebound soon,” he Vijayakumar.
High Valuations and Sluggish Earnings Growth
The Nifty continues to trade at elevated valuations, with its one-year forward price-to-earnings ratio nearing 20x, significantly above the 10-year average of 18.97x. This, combined with weak earnings growth, has made investors wary.
Vinit Sambre, head of equities at DSP Mutual Fund, told CNBC-TV18, “The market levels are very high, and there is not much margin of safety across most sectors.”
Vijayakumar said, “This bearish outlook is particularly impacting the domestic market, which is already contending with high valuations & low earnings growth.”
Technical Breach Triggers Selling
The Nifty falling below its 200-day moving average of 23,870 on Thursday added to the selling pressure. Breaching the support level of 23,850 today opened the possibility of further declines towards the 23,550 level.
What Should Investors Do Now?
Although a mild recovery could be on the cards ahead of the Reserve Bank of India’s February monetary policy, experts urge caution.
V K Vijayakumar noted, “The ongoing fall has turned valuations fairer for select large-cap stocks, particularly in the banking sector, with ICICI Bank and HDFC Bank offering attractive buying opportunities.”
He also advised focusing on quality stocks with reasonable valuations, as sectors like FMCG remain overvalued amidst a slowdown in consumption. Investors are recommended to adopt a wait-and-watch approach during this period of uncertainty.
