SENSEX and NIFTY drop 5%, biggest weekly decline in 2 years; "Santa Rally" possible?

This week, the Indian stock market witnessed a major setback, with both the SENSEX and NIFTY suffering their largest weekly losses in two years.

The SENSEX plunged 4,091 points, or 4.98%, ending the week at 78,041.59. Meanwhile, the NIFTY50 dropped 4.8%, losing 1,181 points to close at 23,587.5.

Market Overview

The markets experienced a turbulent week, with the benchmark indices falling sharply after four consecutive weeks of gains. In just five days, investors lost nearly ₹17 lakh crore in market capitalization.

Factors Behind the Drop

The early-week correction was largely driven by cautious trading, as investors anxiously awaited the US Federal Reserve's decision on interest rates. While a 25-basis-point rate cut was largely expected, fears about a less dovish stance from the Fed led to heightened caution. When the Federal Reserve confirmed the rate cut but signaled only two more cuts in 2025 instead of the anticipated four, the global equity markets were shaken. The SENSEX and NIFTY took a significant hit, dropping 2.7% and 2.5%, respectively, in the wake of the Fed's announcement.

Additionally, the Bank of Japan and the People’s Bank of China held their benchmark lending rates unchanged, providing no positive surprises for investors.

IT Stocks Hit Hard

The Information Technology (IT) sector was the biggest casualty of the week’s downturn. Despite the Indian rupee hitting an all-time low against the US dollar, IT stocks suffered significant losses. The NIFTY IT index fell 4.8% this week, and major IT stocks saw sharp declines. Infosys lost 3.6%, Tata Consultancy Services (TCS) dropped 6.6%, LTI Mindtree plunged 13.3%, Wipro fell 1.3%, and HCL Technologies declined 2.6%. Analysts speculated that investor pessimism about the US interest rates in 2025 could hurt economic growth and reduce IT spending from US businesses.

Pharma Sector Stands Strong

In contrast to the broader market, the pharma sector held up well. The NIFTY Pharma index gained 1.6% this week, benefiting from a weaker rupee, which boosts revenues for Indian pharma companies with significant sales in the US. Notable gains were seen in stocks like Dr. Reddy’s Laboratories (+8%), Lupin (+3.5%), and Aurobindo Pharma (+2.7%).

MobiKwik's Trading Debut

MobiKwik Systems Ltd, the parent company of the fintech platform MobiKwik, had a strong debut this week. The stock listed at ₹440 per share on the NSE, a 57.7% premium over its IPO price of ₹279. By Friday, the stock had surged to ₹544 but later corrected, closing at ₹502.90.

What’s Next?

While further corrections cannot be ruled out, analysts suggest that the market may be oversold, and there could be a potential "Santa rally" as we approach the holiday season. This could provide a welcome boost to equities, as investors typically look for year-end gains.