The Indian stock market experienced a day of volatility as key indices, Nifty 50 and Sensex, both ended in the red due to a significant drop in IT stocks. The Nifty 50 slipped by 41.00 points i.e 0.16% to close at 25,377 points, while the S&P BSE Sensex also fell by 0.13% i.e 131.43 points ending at 82,968 points.
The market remained cautious ahead of the US Federal Reserve's anticipated rate cut, which is expected to be the first in four years. This cautious sentiment kept the indices range-bound, with investors choosing to hold back from aggressive positions.
The IT sector saw a sharp decline, with major stocks like TCS, Infosys, and HCL Technologies facing losses of more than 3%. This drag on the market was compounded by declines in other sectors such as pharmaceuticals, which also saw notable drops. In contrast, financial stocks showed resilience, helping to moderate the overall market decline.
Despite the general downtrend, both the Nifty 50 and Sensex hit new all-time highs during the session before pulling back. The Nifty 50 touched 25,482 points, while the Sensex hit a high of 83,326 points. However, these gains were short-lived as selling pressure, particularly in IT stocks, pulled the indices lower by the end of the day.
The broader market also struggled, with the Nifty Midcap 100 and Nifty Smallcap 100 both underperforming the benchmark indices. The Nifty Midcap 100 fell by 0.71%, closing at 59,752 points, while the Nifty Smallcap 100 dropped by 0.64% to end at 19,389 points. This underperformance was a result of profit booking in midcap and smallcap stocks, which had rallied in recent weeks.
The significant decline in IT stocks led to the Nifty IT index plummeting by 3.02%, marking its steepest fall in six weeks. This drop pushed the index to a two-week low, falling below the 42,000 mark for the first time since early September.
The sharp decline in IT stocks is largely attributed to profit booking by investors who had seen significant gains in the sector over the past few months. Since June, IT stocks had rallied by 32%, prompting many to lock in their profits ahead of the expected rate cut by the US Federal Reserve.
The US Federal Reserve's upcoming meeting is expected to announce a rate cut, which has caused mixed reactions in global markets. Investors are anticipating a 25-basis point cut, with some speculating a more aggressive 50-basis point reduction. This uncertainty has led to cautious trading in the Indian market, as investors await further clarity on the Fed's decision.
In contrast to the decline in IT and pharmaceutical stocks, banking stocks surged during the session. The Nifty Bank index gained 1.08%, closing at 52,954 points, and reached a 10-week high during the day's trading.
Investors shifted their focus to banking stocks, anticipating that the Federal Reserve's rate cut could boost the sector. Lower interest rates are expected to increase borrowing activity, benefiting banks through higher loan demand and improved net interest margins.
Amit Goel, co-founder and chief global strategist at Pace 360, commented on the positive outlook for banking stocks, stating that lower interest rates typically lead to increased borrowing and reduced risk of loan defaults.
This, in turn, improves the quality of bank assets and enhances profitability. Goel's insights reflect the general market sentiment that banking stocks could see further gains in the coming weeks, driven by the expected policy shift in the US.
Overall, the market's performance was characterised by a tug-of-war between declining IT stocks and the strong performance of banking shares. While the broader market remained cautious, banking stocks provided some relief, helping to limit the losses in key indices.
With the Federal Reserve's decision looming, investors are likely to remain cautious in the short term, awaiting further developments that could impact global financial markets.
In the coming days, the focus will remain on the US Federal Reserve's meeting and its impact on global markets. Analysts expect that the rate cut could spur a rally in banking stocks, while other sectors, particularly IT and pharmaceuticals, may continue to face challenges as investors reassess their positions. The market's overall direction will depend on how these factors play out, with cautious optimism prevailing among investors.
Follow us
