Sensex, Nifty fall for third day as FPIs pull funds ahead of Fed meet

Overseas investors pull out Rs 8,000 crore this week amid rupee slide

Benchmark indices declined for the third consecutive day amid continued selling by foreign portfolio investors (FPIs).

 

Also, a sustained fall in the rupee and concerns about the US Federal Reserve's (Fed’s) monetary policy outlook trajectory added to the risk.

 

The Sensex on Wednesday fell 502 points, or 0.6 per cent, to end at 80,182, while the Nifty 50 fell 137 points, or 0.6 per cent, to 24,199.

 

FPIs on Wednesday sold shares worth Rs 1,317 crore, extending their three-day selling to Rs 8,000 crore. This has led to a 2.4 per cent fall in the benchmark Sensex and Nifty, over the three days.

 

 

Market players warn of continued volatility in equity markets, citing headwinds such as slowing domestic earnings growth and gross domestic product (GDP), weakening rupee as well as expensive valuations.

 

These factors may prompt investors to book profits during market upswings.

 

The rupee closed at a new low of 84.96 against the dollar. So far this year, the rupee has declined 2.06 per cent against the US currency.

 

The rupee’s weakness is also seen driven by concerns over India's merchandise trade deficit, which surged to $37.84 billion in November. This is due to a rise in gold imports and a fall in exports from $27.14 billion in October. Year-on-year (Y-o-Y), the deficit nearly doubled from $20.7 billion.

 

Concerns about US President-elect Donald Trump's policies and its impact on emerging market flows also made investors wary.

 

A recent note by Elara Capital highlighted that foreign funds were pulling out of most emerging markets (EMs) and developed markets (DMs) and investing in the US ahead of Trump's return to the White House.

 

According to Elara’s Global Liquidity Tracker report, foreign investors withdrew funds from 39 of the 41 EM and DM regions last week.

 

Conversely, US equities saw inflows of $8 billion, marking the 10th consecutive week of strong foreign inflows.

 

Bank of America reported on Tuesday that cash levels as a percentage of total assets under management (AUM) fell to 3.9 per cent in December — a signal that has often preceded global equity selloffs.

 

Prior to the latest fall, both the indices, however, had surged 6 per cent from their November lows.

 

“The Indian market is experiencing a breakdown in the early Santa Claus rally, with the impact being more pronounced in India than in developed markets due to the rapid appreciation of the dollar. Market sentiment remains cautious ahead of the incoming US administration's potential policy and tariff shifts. This caution is further influenced by India's premium valuation, which is significantly above the current earnings growth trajectory that has slowed over the last two quarters. Additionally, the widened November trade deficit has negatively affected domestic sentiment,” said Vinod Nair, head of research at Geojit Financial Services.

 

More than two-thirds of Sensex stocks declined. HDFC Bank, which fell 1.2 per cent, was the biggest drag on Sensex, followed by ICICI Bank, which fell 1.5 per cent. Market breadth was weak, with 2,614 stocks declining and 1,391 advancing.

 

“The Nifty has breached a critical support level at 24,300, and the sharp decline in the banking sector, which had been pivotal in the recovery, is now exacerbating the weakness.

 

This could drag the index further down toward the previous swing low zone, that is, 23,850-24,000, while resistance is expected in 24,450-24,600. Despite the cautious outlook, there are stock-specific opportunities on both the upside and downside. Traders should position themselves accordingly,” said Ajit Mishra, senior vice-president of research at Religare Broking.