US Fed forecast rattles Dalal Street, Indian investors lose ₹6 lakh crore within minutes

The Indian stock market witnessed a sharp sell-off on Dec 19, driven by global economic concerns. The benchmark Sensex nosedived over 1,000 points, while the Nifty fell below the critical 24,000 mark.

This massive decline came after the US Federal Reserve indicated fewer interest rate cuts in 2025 due to ongoing inflation and economic resilience.

The BSE's total market capitalization plummeted by ₹ 5.94 lakh crore, settling at ₹ 446.66 lakh crore.

Key Contributors to the Decline: Heavyweight stocks, including HDFC Bank, Infosys, ICICI Bank, Reliance Industries, SBI, and HCL Tech, accounted for a 600-point fall in the Sensex. Other significant contributors included Axis Bank, M&M, Kotak Bank, and Bajaj Finance.

Sector Impact: Rate-sensitive IT firms with major revenue exposure to the US faced sharp declines. LTIMindtree, Mphasis, and Wipro dropped up to 5%, reflecting investor concerns over future earnings.

The India VIX fear index surged 5% to 14.37, indicating increased market volatility.

Major Influencing Factors:

1. Fed’s Interest Rate Outlook:
   The US Federal Reserve's decision to cut interest rates by 25 basis points was expected. However, its forecast of only two additional quarter-point reductions in 2025 fell short of market expectations of three or four cuts. This reduced easing projection—half a percentage point less than anticipated—rattled investors globally.

The probability of a rate cut in Jan 2025 dropped from 16% to 6%, according to the CME FedWatch tool.

"The Fed’s guidance on fewer rate cuts in 2025 provided the much-needed trigger for a sharp market correction," said Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services. He added, "The Fed chief’s comments about the economy and labor market suggest resilience, but markets were spooked when expectations weren't met."

1. Rising Bond Yields and Dollar Strength: US 10-year bond yields hit a seven-month high of 4.524%, while the dollar index climbed to its highest level since November 2022, reaching 108.15.

"The dollar index surpassing 108 and 10-year bond yields spiking to 4.52% are clear negatives for FII fund flows, though this could be temporary," said Vijayakumar.

1. Global Market Downturn:
   US stocks posted steep losses on Dec 18, with the Dow Jones seeing its worst performance in over four months after the Fed's rate cut announcement. The S&P 500 registered its worst loss on a rate decision day since 2001, and the Dow extended its longest losing streak since 1974.

The Asian market also felt the impact, with Japan's Nikkei 225 falling 0.8%, China’s Shanghai Composite dropping 0.72%, and Korea’s Kospi declining 1.5%.

1. Technical Indicators: The Nifty formed a "Three Black Crows" pattern after falling for three straight sessions, signaling a potential trend reversal.

"The next crucial support level is the Nov 28 trough of 23,873. A breach could invalidate the bullish head-and-shoulders pattern targeting 25,500, making 23,300 levels more susceptible," noted Akshay Chinchalkar, Head of Research at Axis Securities. He added, "Immediate resistance stands at 24,500, while options data shows a bearish sentiment, with call sellers targeting strikes near current levels."

Overall, market sentiment remains cautious as investors digest the US Fed’s policy signals, global market declines, and domestic technical indicators suggesting further volatility ahead.