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The Indian equity markets experienced significant pressure, primarily attributed to anticipated Foreign Institutional Investor (FII) selling. Analysts posit that FIIs are liquidating their positions due to year-end considerations, exhibiting a reluctance to maintain holdings even in the cash market. This selling pressure manifested in a considerable decline for key market indices. The Nifty 50 index plummeted 300 points (1.2%), closing at 24,323.60, while the Sensex experienced a more dramatic fall of 973.67 points (1.2%), reaching a daily low of 80,639.97. This downturn was largely concentrated in large-cap stocks, underscoring the impact of FII actions on the overall market sentiment.
Ajit Mishra, Senior Vice President of Research at Religare Broking, directly linked the market decline to FII selling driven by year-end adjustments. He highlighted the attractive returns currently available in US markets as a key factor motivating FIIs to shift their investments. The anticipation of a policy rate cut in the US further strengthens the allure of the American market, creating an incentive for FIIs to transfer funds. While large-cap stocks bore the brunt of the selling pressure, Mishra also noted some signs of recovery in certain stocks, potentially fueled by Domestic Institutional Investor (DII) buying. This suggests a counterbalance to FII selling, although the overall impact of FII activity was dominant.
Profit-taking in the IT sector further contributed to the market's downturn. Ahead of the Federal Reserve's policy announcement, investors engaged in profit-taking, adding another layer of downward pressure to the indices. This preemptive move highlights the sensitivity of the market to potential changes in US monetary policy and its consequent impact on global investment flows. The broader market indices also felt the impact. The Nifty Midcap 100, while showing initial strength, ultimately closed 450 points (0.8%) lower at 59,204.30, illustrating the pervasive nature of the selling pressure. Similarly, the Nifty Bank index dropped 780 points from its intraday high, settling at 52,735.95, reflecting the general bearish sentiment.
Index heavyweights bore the brunt of the market decline, significantly contributing to the fall in the Nifty 50. Stocks such as HDFC Bank, Reliance Industries, Bharti Airtel, ICICI Bank, and TCS experienced substantial losses. Several other prominent stocks also suffered significant declines, with Shriram Finance witnessing a particularly steep drop of 4.8%. Bharti Airtel, Grasim Industries, JSW Steel, and Hero MotoCorp also recorded notable losses within the Nifty 50, further underscoring the widespread nature of the market downturn. The technical analysis offered by Rupak De, Senior Technical Analyst at LKP Securities, added another dimension to the interpretation of the market's behavior. He noted that the Nifty's sharp decline followed a bullish harami pattern on the daily timeframe, indicating a potential reversal of a prior bullish trend.
The confluence of factors, including year-end FII selling, attractive returns in US markets, anticipation of a US policy rate cut, and profit-taking in the IT sector, created a perfect storm that resulted in the significant downturn in Indian equity markets. The interplay between FII and DII actions, along with technical indicators, paints a complex picture of market dynamics. The volatility experienced highlights the inherent risks associated with global investment flows and the impact of macroeconomic factors on local market performance. While some recovery was observed in specific sectors, the overall trend indicates a period of uncertainty and potential further volatility in the near term, particularly pending upcoming policy announcements and global economic developments.
Source: Why are markets under pressure- Are investors worrying about end-of-year FII selling?