Sensex, Nifty fall 1.4% amid US Fed meeting anticipation, trade deficit worries

The stock markets fell 1.4 per cent on Tuesday as investors unwound positions ahead of US Federal Reserve meeting on Wednesday. The meeting is expected to provide cues on the trajectory of interest rate cuts. Sentiments were battered by a fall in the rupee, which fell to a new low on Monday’s  widening trade deficit data.

Analysts said investors will watch out for US retail sales data to be released later today.

The benchmark Nifyt50 closed at 24,336 points at the end of the trading day, while the BSE Sensex ended 1.3 per cent lower at 80,684.45 points. The trading was marked by weak FPI volumes.

Frontline stocks such as HDFC Bank, Reliance Industries, and Bharti Airtel bore the brunt of selling pressure. Out of the 50 Nifty companies, only two stocks advanced, while 48 recorded losses. Cipla and ITC were the gainers.

Most of the sector indices ended deep in the red with the Nifty PSU Bank falling the most at 1.82 per cent. The mid-cap and small-cap indices also showed significant erosions of 0.8-0.7 per cent testifying to the marketwide selloff.

The US Fed is widely expected to reduce rates by 25 basis points and while this is already factored in, there is apprehension over a change in the dovish stance in anticipation of higher inflation when Donald Trump takes over. Any easing in monetary policy in the US is beneficial for emerging markets such as India which  gets more flows.

“While markets have priced in a 25 basis points rate cut, much of the focus is on Fed Chair Jerome Powell’s commentary regarding future rate moves,” said Vikram Kasat, Head – Advisory, PL Capital, Prabhudas Lilladher.

The biggest losers were financials, led by HDFC Bank, which fell 1.7 per cent. The RBI warned it on Monday for non-compliance with disclosure norms. RIL, which has a significant weight in the index, further dragged down the index by a 1.6 per cent fall. IT firms’ stocks lost half a percentage point.

The volatility index saw a distinct spike and analysts warned that more choppy markets would follow. “Volatility is becoming a norm rather than exception on Dalal street,” said Devarsh Vakil, Deputy Head Retail Research, HDFC Securities.

The Nifty50 has fallen 5.7 per cent this quarter and heading for the biggest decline since the second quarter of 2022, Vakil added.