Dalal Street Faces Bearish Sentiment as Sensex, Nifty Drop on Persistent Outflows, IT Weakness, and Powell’s Comments
Dalal Street witnessed a sharp decline in a truncated trading week, with the Sensex and Nifty both tumbling amid a combination of factors. Persistent foreign fund outflows, continued selling pressure in IT stocks, and cautious remarks from US Federal Reserve Chairman Jerome Powell regarding rate cuts all contributed to the bearish mood. The Nifty, which briefly attempted a recovery earlier in the session, remained under pressure, trading 0.69% lower at 23,369.85 as of 11:15 AM. This marked a significant correction of over 10% from its all-time highs in September, breaking through several key support levels and recording its sharpest decline in four years since the pandemic-induced crash.
Key Factors Behind the Market Decline:
- Citi Downgrades Indian Stocks:
A major blow to market sentiment came from global brokerage Citi, which downgraded Indian equities. Citi cited concerns over weakening earnings momentum as the primary reason for its negative outlook. The subdued Q2FY25 earnings reported by many companies have added to the market’s pessimism, further eroding investor confidence. As corporate earnings continue to underperform expectations, the overall market sentiment has soured, especially in sectors reliant on robust growth. - Foreign Fund Outflows:
Another major factor contributing to the market decline is the continued outflow of foreign institutional investment (FII) from Indian equities. With global markets showing signs of stress and increasing interest rates in developed economies, FIIs have been pulling out funds from emerging markets like India. These outflows have weighed heavily on market liquidity, exacerbating the ongoing correction and leading to more selling pressure. - Selling Pressure in IT Stocks:
Information Technology (IT) stocks, which had been market leaders during the pandemic rally, have come under significant selling pressure. The IT sector has been hit by concerns over slowing global demand, margin pressures, and lower-than-expected growth in key markets such as the US and Europe. The weakness in large-cap IT stocks has been a key drag on the indices, with investors re-evaluating their exposure to the sector in light of a challenging macroeconomic environment. - Powell’s Remarks on Rate Cuts:
Jerome Powell’s cautious comments on the future trajectory of US interest rates also added to the market’s nervousness. The Federal Reserve Chairman indicated that rate cuts might not be as imminent as some market participants had hoped, which has led to concerns over global liquidity tightening. With the US dollar remaining strong and US Treasury yields on the rise, the prospects of higher borrowing costs globally have added to the pressure on risk assets, including Indian equities. - Rising Domestic Inflation and Economic Concerns:
Domestically, the surge in consumer price inflation (CPI) to a 14-month high of 6.2% has raised concerns about the potential for further tightening of monetary policy by the Reserve Bank of India (RBI). Higher inflation could lead to slower economic growth, further compounding the challenges facing the market. - Weakening of Key Sectoral Indices:
Apart from IT, several other sectors have shown signs of weakness, including Auto, Metals, and FMCG. The ongoing correction has been broad-based, with both large-cap and mid-cap stocks across multiple sectors facing selling pressure. This has further deepened the market’s downturn. - Technical Breakdown:
Technically, the Nifty has broken several important support levels, including its 200-day moving average (SMA) and key Fibonacci retracement levels. This technical breakdown has triggered stop-loss selling and further exacerbated the downward pressure on the index. The Nifty’s drop of over 10% from its all-time high in September marks its steepest correction since the pandemic-induced market crash of 2020, adding to the market’s volatile sentiment.
Outlook:
With global and domestic headwinds continuing to weigh on sentiment, the market faces a challenging outlook in the near term. While the 200-day SMA at around 23,500 for Nifty and 77,400 for Sensex may offer some support, the overall trend remains weak. Investors may adopt a cautious stance, closely monitoring corporate earnings, inflation data, and global macroeconomic developments for further signs of stabilization or deterioration in market conditions.
Given the volatility, traders may look for tactical opportunities, while longer-term investors might consider waiting for a clearer reversal or confirmation of support before adding exposure to the market.
