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The Indian equity market experienced a significant downturn on Thursday, erasing the gains witnessed the previous day following Republican candidate Donald Trump's victory in the U.S. presidential election. This reversal in investor sentiment reflects a cautious approach ahead of the crucial monetary policy decision by the U.S. Federal Reserve, scheduled for later that day.
The decline in Indian equities was exacerbated by several factors, including weak second-quarter financial results for the fiscal year 2025 (Q2FY25), a weakening Indian rupee, and persistent selling by foreign institutional investors (FIIs). The benchmark Sensex closed the day at 79,541.79, down 836.34 points or 1.04%, while the Nifty settled at 24,199.30, a drop of 284.70 points or 1.16%. The broader markets also reflected this negative trend, with the Nifty Midcap100 and Nifty Smallcap100 experiencing declines of 0.43% and 0.75%, respectively.
Analysts attribute the market's fall to the combination of ongoing foreign fund outflows driven by the Indian rupee reaching new lows against the strengthening U.S. dollar and investors' reluctance to commit to equity positions ahead of the Fed's policy announcement. Uncertainty surrounding the possibility of a rate cut, fueled by concerns about rising inflation, further contributed to this cautious approach. The Fed's meeting holds significant importance as it is the first following the closely contested U.S. election. The chair is expected to deliver a 25 basis points rate cut during this meeting.
Despite the overall downturn, the fall in Indian equities was juxtaposed against a positive trend in the global markets, with the Dow Futures surging by 1,100 points and Russell 2000 futures jumping 4% on Wednesday. European markets also saw significant gains following the U.S. election results. China's Shanghai Composite and Hang Seng indices advanced by approximately 2% each on Thursday. However, despite these positive global indicators, the Indian market remained under pressure due to the factors outlined above.