PSU stocks' selloff keeps markets in the red; Nifty down for 4th day

The Indian stock market experienced a tough day, with early optimism fading quickly, leading to a sharp drawdown. Despite a positive start to Tuesday’s trading session, the momentum was short-lived as investors quickly resumed their 'sell on rise' strategy. This swift selling pressure left little room for the indices to recover, resulting in continued weakness throughout the day.

The ongoing trend of selling into rallies has kept the markets in a downward spiral, making it difficult for any significant rebound to take place. Notably, the pressure wasn’t limited to Indian markets alone—other Asian markets also closed the day with significant losses.

The Nifty 50 continued its downward trend for the fourth consecutive trading session, closing 1.07% lower at 23,883. Similarly, the Sensex ended the day in the red, shedding 1.03% to finish at 78,675, marking its fourth straight session of losses.

Midcap and smallcap stocks faced similar pressure, with the Nifty Midcap 100 index falling by 1.07%, closing at 55,257. The Nifty Smallcap 100 index also tumbled by 1.28%, settling at 17,991.

Nifty PSE takes the worst hit

Among the sectoral indices, Nifty PSE was the hardest hit, falling by 2.41%, followed by Nifty Auto, which dropped nearly 2%. Nifty PSU Bank also saw a significant decline, shedding 1.92%, while Nifty FMCG, Nifty Metal, Nifty Energy, and Nifty Consumer Durables all closed with losses of up to 1.5%.

Except for the Nifty IT, which ended flat, all major sectoral indices finished in negative territory.

In terms of individual stocks, 44 constituents of the Nifty closed in the red. Britannia Industries led the decline with a 7.5% drop after its Q2 results missed street estimates. Bharat Electronics followed, losing 3.2%, while other notable losers included NTPC, HDFC Bank, Asian Paints, SBI, Tata Motors, Bajaj Auto, Shriram Finance, Maruti Suzuki, JSW Steel, and 17 other stocks, all of which recorded losses of over 1%.

Below are some of the key factors that contributed to the sharp selloff in today's trade:

PSU stocks' selloff: Amid concerns over expensive valuations, shares of PSU companies experienced a strong selloff in today’s trade. The Nifty PSE index ended the session with a significant drop of 2.41%, while the Nifty PSU Bank index saw a decline of 1.92%. The broader BSE PSU index also witnessed a sharp fall of 2.26%, with 26 constituents of the index reporting losses ranging between 2% and 10%.

Dollar surges to 4-month high: Donald Trump's victory in the U.S. election has strengthened the dollar index, which has risen by 1.8% so far this month. In today’s trade, the dollar index rose by another 0.3% to 105.87, its highest level since July, exerting pressure on emerging market currencies.

Expectations of a second Trump presidency, along with a potential Republican sweep of Congress, have fuelled optimism for deregulation and tax cuts. Experts believe these measures could boost economic growth and stoke inflation. This has also raised concerns that it may limit the Federal Reserve’s ability to cut rates further, thereby supporting the current rally in the dollar.

During the 2024 presidential campaign, Trump proposed reducing the corporate tax rate for U.S.-based manufacturing from 21% to 15%, along with new tariffs, including a 10% tariff on all imports and a 60% tariff on goods from China. If trade tensions between the two global powers escalate, it may lead to a further strengthening of the dollar as investors flock to the U.S. for safety amid rising uncertainty.

Continued FPI selling: Foreign portfolio investors (FPIs) extended their selling streak for the 31st consecutive trading session on Monday, withdrawing an additional ₹2,306 crore from Indian equities. This brings the total outflows for November to ₹22,306 crore, according to the latest Trendlyne data.

Throughout October, FPIs remained net sellers, offloading ₹1.14 lakh crore worth of Indian stocks through exchanges. Concerns over extreme valuations, a slowdown in Q2 earnings, and weaker high-frequency indicators are currently weighing on investor sentiment.

On the other hand, China's recent stimulus measures have attracted overseas investors, hoping that these new initiatives will help Beijing revive its economy, which has been under pressure following the COVID-19 pandemic.

Recent reports indicate that Foreign Portfolio Investors are shifting investments from overheated Indian stocks to Chinese markets, as they do not see any near-term catalysts to justify maintaining valuations at elevated levels in India.

Rupee reaches another low: The strong surge in the US dollar, coupled with persistent FPI outflows, is exerting significant pressure on the Indian rupee, which fell to a new record low of ₹84.41 against the US dollar in today's trade, marking a 1.4% decline this year.

An SBI research report released on Monday forecasted that the rupee may depreciate by 8-10% against the US dollar during a second Trump presidency.

The report, titled "US Presidential Election 2024: How Trump 2.0 Impacts India’s and Global Economy," highlighted that the rupee could experience a brief period of depreciation against the dollar, followed by potential appreciation.

Concerns over delay in rate cuts: While major central banks worldwide, including the US Federal Reserve, have already started reducing interest rates—some for the second time in 2024—the Reserve Bank of India (RBI) has maintained a status quo.

Inflation remains the primary concern for the RBI's Monetary Policy Committee (MPC), with recent upward pressures stemming from higher food prices due to the extended monsoon season and crop damage.

The significant depreciation of the rupee poses an additional challenge for the RBI as a weak currency leads to higher import costs, potentially driving prices even higher. October's inflation data, released today, showed a 6.21% increase in retail inflation, marking a 14-month high and breaching the RBI's upper tolerance limit of 6% for the first time in over a year.

(By arrangement with livemint.com)