Dear
Trader…
The decline followed the Federal Reserve’s signal of fewer
interest rate cuts in 2025, dampening risk appetite and raising concerns about
increased foreign outflows from domestic markets.
The market capitalization of all listed companies on the BSE
decreased by Rs 2.64 lakh crore to Rs 449.96 lakh crore.
ICICI Bank, Reliance Industries, HDFC Bank, Infosys, TCS, and
L&T collectively accounted for a 590-point drop in today’s overall Sensex
decline. M&M, Bajaj Finance, ITC, Axis Bank, and SBI also contributed to
the fall.
US rate-sensitive domestic IT firms, which derive a
significant portion of their revenue from the US, closed up to 5.3% lower, led
by LTIMindtree, Mphasis, LTTS, and Infosys.
Metal stocks shed up to 3%, tracking global peers, as the
dollar strengthened after the Fed’s rate outlook. Meanwhile, the India VIX fear
gauge surged 5% to 14.37.
Here are the key factors behind the crash:
1) Fed
signals fewer rate cuts – The US Federal
Reserve announced a 25-basis-point rate cut overnight, as widely expected, but
its forecast of only two quarter-point reductions in 2025 was lower than the
three or four cuts anticipated by markets. This reduced easing projection—half
a percentage point less than expected—triggered concerns among investors. The
odds of a January 2025 rate cut dropped to 6% in early Asian trading hours on
Thursday, down from 16% before the Fed’s decision, according to the CME
FedWatch tool. Rate cuts in the US typically help emerging market assets, such
as Indian equities, as they boost foreign inflows.
2) Rise in Bond Yields and Strong Dollar – The yield on benchmark US 10-year notes touched a seven-month
high of 4.524% on Wednesday and was last at 4.514%.The shifting expectation of
Fed rate cuts lifted the dollar index, which measures the US currency against
six rivals, to its highest since November 2022 on Wednesday. It was last at 108.15
in early trading on Thursday.Higher bond yields make US assets more attractive,
leading to capital outflows from emerging markets like India. Additionally, a
stronger dollar increases the cost of foreign capital, discouraging investment
and further weighing down market sentiment.
3) FII Selling – Foreign
institutional investors (FIIs) have sold holdings worth Rs 8,000 crore over the
past three sessions, raising concerns that FPIs could repeat the October
sell-off. “Investor caution persists amid ongoing FII selling,” said
Vinod Nair, Head of Research at Geojit Financial Services.
4) Decline in Global Markets –
Stocks around the world tumbled on Thursday,
after the Federal Reserve decided to lower its benchmark interest rate by 25
basis points to 4.25-4.50% range but reduced its forecast for further rate cuts
in 2025.All three major U.S. indexes posted their biggest daily decline in
months on Wednesday, and Europe’s STOXX 600 share index declined 1%, while
Asian stocks fell 0.5%, spooked by the prospect of fewer U.S. rate cuts.
Nifty futures opened at 24100 points against the previous
close of 24257 and opened at a low 23920 points. Nifty Future closed with an
average movement of 180 points and Decline of around 238 points and closed 24018
points…!!
Meanwhile,
When valuations are high the market needs only a
trigger to correct sharply. This trigger was provided by the Fed guidance of
fewer rate cuts in 2025, which went against market expectations.
The Fed chief’s comments regarding the economy and the labour
market are, in fact, positive, suggesting a resilient US economy. But always
the market gets spooked when the reality falls short of expectations.
The dollar index rising above 108 and the 10-year bond yield
spiking to 4.52 % are clearly negatives from the perspective of FII fund flows.
But this is likely to be only temporary.
Technically, the
important key resistances are placed in Nifty future are at 24018 levels, which
could offer for the market on the higher side. stainability above this zone
would signal opens the door for a directional up move with immediate
resistances seen at 24088 – 24202 levels. Immediate support is placed at 23880 –
23808 levels.
Past Performance is not an Indicator of Future Returns. The
securities quoted are for illustration only and are not recommendatory. Investment
in securities market are subject to market risks. Read Disclaimer and related
all the documents carefully before investing, mentioned on www.nikhilbhatt.in
