9 Factors That Drove Nifty’s Fall Below 24,350: Trade Deficits, FII Selling Top the List

If you were checking your investment portfolio yesterday, you might have been surprised by the sharp decline.  The Nifty, a key benchmark index, fell below 24,350, and the Sensex also took a significant hit. This drop has left many investors concerned, as the Sensex and Nifty plummeted more than 1% each.

The BSE Sensex lost a staggering 1,064.12 points, closing at 80,684.45, while the NSE Nifty fell by 332.25 points, ending the day at 24,336. But what exactly caused this dip? Let’s look into the nine factors behind this significant market move.

Sectoral Indices Performance

Sectoral indices reflected the broader market weakness, with major sectors closing in the red.

• Major Declines: Nifty Bank, Financial Services, and Oil & Gas declined by over 1%. Nifty Auto, FMCG, IT, and Metal also recorded losses exceeding 0.5%.
• Outliers: Bucking the trend, Nifty Media and Nifty Realty emerged as gainers, managing nearly 1% growth each due to selective buying.
• FMCG Sector Trends: Smaller players like Umang Dairies, Nakoda Group of Industries, and LT Foods saw gains between 1% and 5%. Conversely, larger FMCG stocks such as Emami, Patanjali Foods, Britannia Industries, and Colgate-Palmolive declined by over 1%, reflecting cautious investor sentiment.

The index’s top drags were Reliance Industries, HDFC Bank, Infosys, Bharti Airtel, and ICICI Bank. On the other hand, Tata Motors, Adani Ports, Tech Mahindra, HUL, HCL Tech, and Power Grid opened with gains.
Source: MoneyControl

Top 9 Reasons Behind Nifty’s Decline

1. Rupee Hits All-Time Low

On December 17, the Indian rupee plunged to a historic low of 84.92 against the U.S. dollar. This marked a significant milestone in its weakening trajectory, largely influenced by persistent foreign fund outflows and lackluster domestic equity performance.

A major contributing factor was the record-high trade deficit in November, which soared to $37.84 billion. Rising imports, particularly of gold, and declining exports fueled the deficit, creating a considerable imbalance.

The rupee’s depreciation poses challenges for foreign portfolio investors (FPIs) who face diminished dollar-adjusted investment returns. This depreciation makes Indian equities less attractive to global investors, leading to further capital outflows. The situation reflects a broader trend of currency vulnerability in emerging markets amidst global economic uncertainties, adding a layer of complexity to the Indian stock market’s recovery prospects. Source: Mint

2. Lack of Fresh FII Buying

Foreign Institutional Investors (FIIs) have remained on the sidelines, refraining from making significant fresh investments in the Indian equity markets. On December 16, FIIs offloaded equities worth ₹279 crore, extending their cautious stance. 

This reluctance to re-enter the market stems from multiple factors, including the weak rupee, global economic uncertainties, and concerns over potential shifts in U.S. monetary policy. This lack of FII participation has notably impacted large-cap stocks, which rely heavily on foreign investments for stability and growth. 

The absence of fresh inflows has intensified selling pressure, contributing to the broader decline in market indices. Market recovery could remain elusive without renewed interest from FIIs, as institutional support plays a crucial role in bolstering investor confidence and driving upward momentum.
Source: MoneyControl

3. US Monetary Policy Uncertainty

Investors are on edge ahead of the U.S. Federal Reserve’s interest rate decision scheduled for Wednesday. While markets have largely priced in a 25 basis-point rate cut, uncertainties loom regarding the Fed’s 2025 rate path. The CME FedWatch tool indicates a 97% probability of this rate cut, but commentary from Fed Chair Jerome Powell will be closely monitored for guidance. Any deviation from dovish remarks could further unsettle markets.

4. Selling in Blue-Chip Stocks

Heavy selling in large-cap stocks added to the market’s woes. Prominent names like Reliance Industries, HDFC Bank, Bharti Airtel, Larsen & Toubro, JSW Steel, and Titan significantly declined. These blue-chip stocks are pivotal to the indices, amplifying the overall market drop.

5. Caution Ahead of BOJ Policy Meeting

The Bank of Japan’s upcoming policy meeting on December 18-19 has added another layer of uncertainty. Speculations about a potential rate hike from the current 0.25% have made investors wary, especially since the BOJ’s decision will follow closely after the Fed’s rate announcement.
Source: Economic Times

6. Surging Trade Deficit

India’s trade deficit surged to an all-time high of $37.84 billion in November, up from $27.1 billion in October. This spike, driven by rising imports and declining exports, has pressured the rupee and spooked FIIs. A depreciating rupee may offer short-term gains for exporters in sectors like IT and pharma, but importers face higher costs, negatively impacting their stock valuations.

7. Weakness in China’s Economy

China’s economic slowdown has created ripples in global markets. Retail sales in November grew by just 3%, down from October’s 4.8%, while industrial output remained steady at 5.4%. This weakening consumption outlook poses risks for Indian sectors like metals, energy, and auto, which are sensitive to China’s economic trends.

8. Stronger Dollar

The U.S. dollar index remained steady at 106.77, reflecting a robust 5% gain for the year. A stronger dollar dampens foreign investor appetite for Indian equities and raises the cost of dollar-denominated debt for Indian companies, adding to the market’s challenges. Source: Economic Times

9. Global Market Weakness

Indian equities mirrored global market trends as traders braced for central bank meetings. MSCI’s Asia-Pacific index fell 0.3%, while Japan’s Nikkei dropped 0.15%. European market futures also pointed to a subdued opening, with Eurostoxx 50 down 0.16% and FTSE futures off 0.24%. Weak global cues amplified the negative sentiment in Indian markets.

Conclusion

The combination of weak global cues, a depreciating rupee, and cautious FII activity created a perfect storm for Indian markets on December 17. While it’s impossible to predict the exact trajectory of the market, investors must stay informed and make informed decisions. A cautious approach, coupled with a long-term investment horizon, could help mitigate the impact of short-term market volatility.

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