Markets fall for second day as Fed caution, IT drag and FPI outflows weigh

Benchmarks fell for a second session as IT and heavyweight losses offset a broader recovery. FPIs sold Rs 3,760 crore while DIIs bought Rs 6,225 crore, with Fed cues in focus

Equity benchmarks declined for a second straight session on Tuesday, weighed down by losses in index heavyweight and information technology (IT) stocks. Caution prevailed ahead of the US Federal Reserve’s policy decision and amid lingering uncertainty over a trade pact with Washington.

 

The Sensex fell 436 points, or 0.51 per cent, to 84,666, while the Nifty 50 dropped 121 points, or 0.5 per cent, to 25,840.

 

The Nifty has now lost 1.3 per cent in two sessions and is down 1.8 per cent from the record highs hit earlier this month.

 

“Markets came under pressure with broad-based selling triggered by rising caution ahead of key US inflation and interest rate signals. Elevated US bond yields, the rupee slipping past 90 amid persistent dollar strength, and continued FPI outflows are weighing on sentiment,” said R Ponmudi, CEO, Enrich Money. 

While the Fed is widely expected to begin easing rates on Wednesday, Wall Street banks have pared back forecasts for rate cuts in 2026, citing sticky inflation and continued resilience in the US economy. Higher US rates typically buoy the dollar and treasury yields, curbing the appeal of emerging-market equities for foreign portfolio investors (FPIs).

 

FPIs sold shares worth ₹3,760 crore on Tuesday, while domestic institutional investors (DIIs) bought equities worth ₹6,225 crore.

 

“Fresh remarks from US President Donald Trump threatening additional tariffs on rice imports from India -- amid slow progress in trade talks-- added to the negative sentiment,” Ponmudi said.

 

US Treasury Secretary Scott Bessent said Washington continued to work toward an agreement with New Delhi, even as Deputy Trade Representative Rick Switzer is scheduled to visit India on December 10-11.

 

Media reports have suggested the US may impose targeted tariffs on certain Indian imports.

 

IT shares led the decline, slipping around 1.2 per cent, with Tech Mahindra and HCLTech falling over 1.8 per cent each.

 

ICICI Bank, HDFC Bank, and Reliance Industries were among the biggest drags on the Sensex, while Asian Paints was the top loser, tumbling 4.5 per cent.

 

Eleven of the 16 sectoral indices ended lower.

 

In contrast, the broader indices recovered modestly-- the BSE SmallCap gained 1.1 per cent and the MidCap index rose 0.3 per cent after both had dropped over 2 per cent in the previous session. Market breadth was positive, with 2,550 stocks advancing against 1,625 declines.

 

Among individual stocks, SpiceJet rallied 5.6 per cent, extending its three-day advance amid operational headwinds at IndiGo, which gained nearly 1 per cent after its CEO said operations had stabilised.

 

Kaynes Technology surged 13.8 per cent, snapping a four-session losing streak, after Macquarie and JP Morgan reiterated positive ratings on the electronics manufacturer.

 

Technically, the market is approaching a key support zone.

 

“Notably, the benchmark is once again drawing support near its 50-day exponential moving average (50-DMA) -- a zone that has historically triggered rebound attempts,” said Dhupesh Dhameja, derivatives research analyst, SAMCO Securities.

 

“Holding above this level will be crucial to maintain the broader positive bias. On the upside, 26,000-26,100 serves as immediate resistance, while 25,700 is the make-or-break level.”

 

Looking ahead to 2026, index performance is expected to track earnings growth.

 

“Our analysis over the past two decades shows Nifty sustains higher valuations only during strong earnings growth cycles, which is unlikely next year,” said Amish Shah, Head of India Research, BofA. “With limited room for valuation expansion, index returns are likely to mirror earnings growth.” 

   (With inputs from Reuters)