Stock Market Mayhem: Sensex, Nifty suffer worst weekly decline in 2.5 years

The Indian stock market faced its sharpest weekly decline in over two years as foreign portfolio investors (FPIs) continued to offload shares amidst uncertainties regarding US interest rate cuts. The Sensex and Nifty, India's primary equity indices, both fell below their 200-day moving averages (DMA), marking a significant downturn.

Market Highlights:

Sensex: Closed at 78,042, down by 1,176 points (1.5%)

Nifty 50: Ended at 23,588, losing 364 points (1.5%)

This marks the steepest single-day drop since October 3, 2024, erasing investor wealth worth ₹18.43 trillion. The total market capitalization of BSE-listed firms now stands at ₹441 trillion.

Both indices experienced a five-session losing streak, the longest for the Nifty since November 2024, and for the Sensex since October 2023. The Sensex fell nearly 5% and the Nifty 4.7% over the week, reversing gains from the past four weeks.

Investor Sentiment and Market Reactions: FPIs sold shares worth ₹13,627 crore this week, with ₹3,598 crore offloaded on Friday alone. Domestic institutional investors attempted to cushion the fall by purchasing ₹1,375 crore worth of shares. The rupee also weakened, hitting a new intraday low of 85.11 per dollar before closing at 85.02, influenced by FTSE rebalancing inflows.

Broader Market Impact:

Nifty Midcap 100: Fell by 2.8%

Small Cap 100: Declined by 2.2%

Market breadth was weak, with 3,044 stocks declining versus 958 advancing. Major contributors to the decline included Reliance Industries (down 2%) and HDFC Bank (down 1.2%).

Global and Domestic Factors: The Federal Reserve's decision to lower its benchmark interest rate for the third consecutive time to 4.25-4.5% did not meet investor expectations, leading to a reevaluation of projected rate cuts in 2025. The sentiment was further dampened by a record trade deficit of nearly $38 billion in November and concerns about FPIs reallocating funds to US markets.

Expert Opinions: U R Bhat, co-founder of Alphaniti Fintech, mentioned that the reduced rate cut projections by the Fed disappointed investors. Additionally, Chokkalingam G, founder of Equinomics, highlighted the persistent FPI sell-off and the cautious approach of retail investors as contributing factors to the ongoing market weakness, which may persist until the end of December.

Outlook: With slowing domestic earnings, GDP growth concerns, and high valuations, volatility is expected to continue in the equity markets. The risk-off sentiment is likely to prevail, with the market remaining sensitive to any negative news.