The Indian stock market ended Thursday's session in deep red as the optimism from the 'Trump trade' rally, which had followed the former President's significant victory in the 2024 US presidential election on Wednesday, failed to sustain its momentum today.
Indian benchmark indices wiped out all the gains from the previous trading session. The Nifty 50 closed down by 1.16% at 24,199 while the S&P BSE Sensex ended 1.03% lower at 79,550 compared to the previous close.
Broader markets also ended the session lower, with the Nifty Midcap 100 index falling 0.49%, while the Nifty Smallcap 100 index settled the session with a drop of 0.84%.
Metal stocks faced significant selling pressure today as the sharp rise in the US dollar following Trump's victory caused volatility in commodity prices.
The proposed significant tariff hikes on Chinese goods by Trump, a key consumer of base metals, have also raised concerns among investors. There are fears that, if implemented, these tariffs could impact China’s economic recovery, especially as the country is working on significant policy measures to drive growth.
Among sectoral indices, Nifty Metal was the worst performer, dropping 2.7%, followed by Nifty Pharma, Nifty Realty, and Nifty Auto, each declining by over 1%. All 13 major sectoral indices ended the session in the negative zone today.
Regarding individual stocks, 45 of the Nifty 50 constituents closed in the red, with Hindalco leading the decline, falling more than 8.5%. It was followed by Trent, Shriram Finance, Grasim Industries, Tech Mahindra, Adani Enterprises, and seven other stocks, all recording losses of over 2%.
In contrast, Apollo Hospitals Enterprise shares managed to end the session with a gain of 6.5%, following the company's strong performance in the September quarter.
With the much-awaited US Presidential elections now concluded, investors have shifted their focus to the US Federal Reserve’s upcoming monetary policy and interest rate decision, scheduled for announcement today.
Below are some of the key reasons why the Indian stock market dropped today.
It seems that investors took yesterday's rally as an opportunity to book profits, as this 'sell on the rise' pattern has been seen in recent sessions. Despite the significant drop in the frontline indices from their recent peaks, analysts still believe that the majority of stocks are trading at extreme valuations.
The softening September quarter numbers, which prompted brokerage firms to trim their earnings outlook, was also one of the reasons behind the sharp sell-off seen in Indian stocks.
The weak September quarter performance by Indian Inc. also suggests that the Indian economy may be cooling.
"India's domestic growth indicators have shown signs of easing in recent months. These signs are clearly evident in manufacturing & services PMI, the government's capex spending, and industrial production. We believe that the weakness in industrial production will reflect in GDP growth as well in 2QFY25," said global brokerage firm JM Financial in its recent report.
Analysts are of the view that Donald Trump’s victory is turning out to be more potentially transformative than thought earlier.
Dr V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services said, "Trump's pro-business initiative of ‘America First’ can strengthen the American economy. But if he walks his talk and imposes a 60% tariff on Chinese imports and a 10% to 20% tariff on imports from other countries, that would trigger inflation and jeopardise the Fed’s policy of containing inflation, necessitating a rethink of the Fed’s present policy of rate cut. This has the potential to negatively impact global stock markets."
It is important to understand that even though Trump’s anti-China policy has positive implications for India, Trump has been critical of ‘India’s high tariffs’ and won’t hesitate to impose tariffs on India’s exports to the US, Vijayakumar said.
He also highlighted that the ‘Trump trade,’ which has sharply lifted the US markets, is unlikely to have a similar positive impact in India since Indian market valuations are high and there are headwinds from an earnings slowdown. Investors should stick to quality and value during this period of euphoria and uncertainty, he said.
Trump’s inflationary policies are anticipated to slow the pace of interest rate cuts by the US Federal Reserve, with potential repercussions for India’s monetary policy.
Central bankers globally are assessing the potential impacts of Donald Trump's return to the U.S. presidency, which poses two primary risks: slower global economic growth and faster domestic inflation, limiting the Federal Reserve's ability to lower interest rates. This could strengthen the dollar and reduce flexibility for developing nations to adjust their monetary policies.
The US Fed policy decision will be announced today, and anticipations are high that the central bank will propose a lower 25 bps rate cut.
Nifty 50 opened within the range of the previous day and has slid since after an attempt to build on yesterday's advance. Nifty 50 faces crucial resistance at 24,500 and has failed to cross that level.
“For the day, support near 24,400 will be key. This is because any close under this level will create a ‘bearish dark cloud cover’. If the decline worsens, then participants will be watching yesterday's open 24,309 closely - if the market ends below this marker, it will create the more powerful ‘bearish engulfing’. For the last few days, 24,500 has served as resistance and will continue to be the critical upside hurdle going forward,” said Akshay Chinchalkar, Head of Research at Axis Securities.
On the downside, he expects 24,309 and 24,204 will be key levels to watch.
According to Sameet Chavan, Head Research, Technical and Derivative - Angel One, the recent price action signifies an initial sign of trend reversal, however, he said, one must refrain from being carried away as a decisive breakout above 24,500 is yet to happen, which may further propel the index towards 24,700 - 24,800 in the comparable period.
“On a positive note, we're seeing a constructive upward shift in the support level around 24,200, which is likely to provide stability against any intraday fluctuations during the weekly settlement session for Nifty 50,” Chavan said.
The sustained outflow of foreign funds is also weighing on the Indian stock market. The Foreign Institutional Investors (FII) have sold Indian equities worth over ₹11,500 crore so far in November. This comes on top of FII outflow worth ₹1.14 lakh crore in October, according to data from stock exchanges.
On Wednesday, FIIs net sold Indian shares worth ₹4,445.59 crore, while Domestic Institutional Investors (DIIs) net purchased shares to the tune of ₹4,889.33 crore, as per provisional data available on the exchanges.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
