With the rupee tumbling below the 85 level mark and foreign outflows picking pace, the benchmark stock indices tumbled for the fifth straight session on Friday. Stock investors were concerned over a likely fewer Fed rate cuts than earlier expected. They also see a hawkish US Fed stance, which has strengthened dollar and resulted in weakness in risky assets such as equities in emerging markets.
JM Financial said the cautiousness reflected in Fed's projections is in response to the uncertainty around Trump's tariff policies and its likely inflationary impact. It said the repricing by market participants in the rate cut expectation were premature, as the actual shape and size of the new policies and its inflationary impact is still unknown.
"We expect the Fed to pause in Jan'25, and depending on the inflation trajectory, the rate cut cycle is expected to be shallow (50-75bps) in 2025. Strengthening dollar will exert further pressure on the EM currencies, we believe that RBI will loosen its grip and allow the rupee to depreciate to 85.5/dollar in the near term," JM Financial said.
The FII buying witnessed in early December is getting reversed now with this week’s selling reaching Rs 12,229 crore, said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
"This change in FII strategy is getting reflected in market trends too, with largecaps, particularly financials, coming under pressure due to FII selling. This trend is unlikely to sustain and, therefore, retail investors can adopt a strategy opposite to the FII strategy. Quality largecaps will soon bounce back," Vijayakumar siad.
On Friday, the BSE Sensex was trading 387.08 points or 0.49 per cent lower at 78,830.97. The NSE Nifty was quoting at 23,861.50, down 90.20 or 0.38 per cent. A total of 1,811 BSE-listed stocks fell while some 1,477 stocks advanced. A total of 147 stocks hit their lower circuit limits.
PL Capital in a note this week said the broader equity markets appear expensive but not significantly overvalued, with around 50 per cent of stocks trading above their 3-year average price-to-book ratio.
"While the Nifty 50's trailing P/E of 22.6 times aligns with its 3-year average, large-cap stocks have faced corrections, primarily due to FII outflows and reallocation towards China," it said.
Axis Bank led the Sensex fall, declining 2.35 per cent to Rs 1,082.40. Tech Mahindra Ltd, UltraTech Cement Ltd, Mahindra & Mahindra Ltd, IndusInd Bank and ITC Ltd fell up to 1.7 per cent. Larsen & Toubro Ltd, HDFC Bank Ltd, JSW Steel Ltd and SBI slipped up to 0.40 per cent.
IT stocks such as Infosys, HCL Tech and TCS edged higher after Accenture's Q1 results and upgrade of FY25 guidance.
"Accenture outperformed its guided revenue range of $16.85–17.45 billion. Outsourcing led growth with an 11 per cent uptick, consulting also accelerated 7 per cent, signalling an improving environment for discretionary spending," ICICI Securities said.
The brokerage said Accenture's FY25 outlook was upgraded to 4–7 per cent from 3–6 per cent in Q4FY24. "Overall, the read through for Indian IT is optimistic with a positive shift in the demand environment too," it said.