Markets fall for a second day; Nifty dips 0.6%, Smallcaps decline 1%

Domestic equities declined for a second consecutive session on Tuesday with the benchmark Sensex and Nifty extending losses amid a weakening rupee and sustained foreign portfolio investor (FPI) selling. Lingering uncertainty over a potential India-US trade deal also weighed on sentiment, although market participants said the US tariff measures have not materially impacted domestic economic growth so far.

 

A cautious global risk environment ahead of key US macroeconomic data releases later this week further curbed investor appetite for equities. 

The Sensex closed at 84,680, down 534 points, or 0.6 per cent, while the Nifty slipped 167 points, or 0.6 per cent, to settle at 25,860. Broader markets underperformed, with the Nifty Midcap 100 declining 0.83 per cent and the Nifty Smallcap 100 falling 0.92 per cent. 

The rupee breached the psychologically important 91-per-dollar mark during the session, hitting a fresh low of 91.08 before closing at 91.03, amid persistent foreign outflows. FPIs have sold equities worth ₹17,242 crore so far in December, taking year-to-date net outflows to around ₹1.6 trillion. 

“Continued INR weakness driven by persistent FPI outflows and subdued global sentiment dragged domestic markets into negative territory. Small and midcap stocks lagged largecaps, with information technology (IT), metals, banking, and realty leading losses, while consumption stocks offered limited support. Volatility is expected to remain elevated amid currency fluctuations and uncertainty over foreign inflows. Progress on the US-India trade deal and rupee stabilisation will be critical. At the same time, softer commodity prices and improving earnings visibility provide a constructive medium-term backdrop,” said Vinod Nair, head of research at Geojit Investments.

 

Investors are now closely tracking key US macroeconomic indicators, including employment data and the consumer price index, for cues on the trajectory of interest rates. Last week, the US Federal Reserve cut its overnight lending rate by 25 basis points but signalled a data-dependent approach to further easing.

 

Indian equities have grappled with sluggish earnings momentum and trade-related uncertainties for much of the year. While markets have staged intermittent rebounds in recent months — aided by stronger-than-expected second-quarter results and optimism over a potential trade breakthrough — rallies have repeatedly been capped by profit-taking as indices approached record levels.

 

Market breadth remained negative on Tuesday, with 2,578 stocks declining and 1,600 advancing on the BSE.

 

Among Sensex constituents, Axis Bank was the biggest drag on the index, sliding 5 per cent after a brokerage report flagged continued pressure on the lender’s net interest margins in the December quarter.

 

From a technical perspective, analysts said the Nifty is approaching key support levels. “For the Nifty, the 50-day exponential moving average (EMA) zone of 25,750–25,700 will act as an important support. A break below 25,700 could trigger a further correction towards 25,550. On the upside, the 20-day EMA zone of 25,950-26,000 will be a crucial hurdle. A sustainable move above 26,000 could lead to an upside rally towards the 26,150 level,” said Sudeep Shah, head of technical and derivatives research at SBI Securities.