Indian equity markets witnessed a steep sell-off on Friday, with the benchmark indices Sensex and Nifty shedding over 1%.
The Sensex dropped 1,147 points, or 1.41%, to 80,142, while the Nifty50 lost 337 points, or 1.37%, touching 24,211, as of 10:35 am, India time.
Investors were spooked by weak global cues, higher domestic inflation, and persistent uncertainty over China’s economic stimulus measures.
The sell-off wiped ₹6.5 lakh crore from the total market capitalization of BSE-listed companies, now at ₹451.65 lakh crore.
Interest rate-sensitive sectors also saw significant losses.
The Nifty Bank, Auto, Financial Services, PSU Bank, and Realty indices dropped between 1.5% and 2.7%.
Meanwhile, India VIX, a measure of market volatility, spiked 9.9% to 14.5, signalling heightened investor anxiety.
China stimulus ambiguity drags down metal stocks
The Nifty Metal Index was the worst performer of the day, slumping 5% as uncertainty loomed over China’s economic policies.
Steel Authority of India (NS:SAIL) and NMDC (NS:NMDC) led the decline with over 4% losses, while Tata Steel (NS:TISC), JSW Steel (NS:JSTL), and Hindustan Copper (NS:HCPR) shed more than 2%.
China, a key driver of global metal demand, has signaled potential economic stimulus, including interest rate cuts and adjustments to banks’ reserve requirements.
However, the lack of clarity on the timing and scale of these measures has dampened investor sentiment, triggering profit booking across metal stocks.
“The metal rally seen after China’s initial stimulus announcements in September has fizzled out as the broader market sentiment remains weak,” said Gaurang Shah, Head Investment Strategist at Geojit Financial Services.
Rising inflation adds to market pressure
India’s retail inflation eased to 5.48% in November, falling within the Reserve Bank of India’s (RBI) target range.
However, rural inflation surged to 9.10% from 6.68% in October, and urban inflation rose to 8.74% from 5.62%.
The spike in inflation levels, particularly in rural areas, has raised concerns over its potential impact on monetary policy decisions.
Higher inflation could compel the RBI to maintain a cautious stance in its upcoming policy review, potentially delaying rate cuts that many investors are hoping for.
Stronger dollar deters foreign investments
The US dollar continued its ascent, with the dollar index rising 0.13% to 107.1.
A stronger dollar erodes the attractiveness of emerging markets like India, as it increases the cost of foreign debt and reduces the appeal of local equities.
“The rising dollar is a concern since it can lead to imported inflation,” said Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Outlook remains cautious
The combination of global uncertainty, domestic inflation concerns, and weak metal demand has created a challenging environment for Indian markets.
While some relief could come from clarity on China’s economic policies, analysts expect near-term volatility to persist.
“Investor confidence may only return with tangible stimulus measures from China and a clear signal from the RBI on interest rates,” said Jeff Ng, Head of Asia Macro (BCBA:BMAm) Strategy at Sumitomo Mitsui Banking Corporation.