Dalal Street witnessed a bearish sentiment in a truncated trading week on Monday, with benchmark indices Sensex and Nifty tumbling due to persistent foreign fund outflows, selling pressure in IT stocks and remarks by US Federal Reserve Chairman Jerome Powell hinting at a cautious approach to rate cuts.

The Nifty, which attempted a brief recovery earlier today, remained under pressure, trading down by 0.69 per cent at 23,369.85 as of 11:15 am. This marks a steep correction of over 10 percent from all-time highs in September, breaking multiple support levels and registering the sharpest decline in four years since the pandemic.

Key Factors Behind Market Decline

1. Citi Downgrades Indian Stocks: Global brokerage Citi downgraded Indian equities, citing concerns over weakening earnings momentum. The subdued September quarter results have added to negative market sentiment, impacting investor confidence.

2. Powell’s Remarks on Rate Cuts: US Federal Reserve Chairman Jerome Powell stated that the Fed is in no rush to cut rates, citing the resilience of the US economy. “If the data allow us to proceed a little slower, that seems a smart thing to do,” Powell said. Higher borrowing costs in the US make its assets, such as bonds, more attractive, leading to capital outflows from emerging markets like India and further strengthening the dollar.

3. Pressure on IT Stocks: The Nifty IT index plunged nearly 3 percent as Powell’s remarks dampened investor sentiment. Major IT players such as Tech Mahindra, TCS, Infosys, and Wipro declined by 2-4 percent, while mid-cap IT stocks including Coforge, Persistent Systems, L&T Technology Services, and Mphasis registered losses of 1-2 percent.

4. Geopolitical Tensions: Lingering geopolitical concerns also weighed on market sentiment. US President Joe Biden authorized Ukraine to use US-supplied missiles for deeper strikes inside Russia, while reports suggested Iran’s Supreme Leader Ayatollah Ali Khamenei is in a coma.

5. Persistent FII Selling: Foreign Institutional Investors (FIIs) offloaded equities worth Rs 1,849.87 crore on Thursday, bringing the total outflows for November to Rs 22,420 crore. High domestic stock valuations, increased allocations to China, and stronger US dollar and Treasury yields have driven this selling spree.

“Despite the Nifty correcting 10.4 percent from its peak, signs of a sustained recovery are absent. Relentless FII selling, earnings downgrades for FY25, and the impact of geopolitical and economic factors are weighing on the market,” said Dr. V K Vijayakumar, Chief Investment Strategist, at Geojit Financial Services.

6. Volatility Index Surges: The India VIX, a measure of market volatility expectations, rose 5 percent to 15.51, indicating heightened fear among traders and continued market uncertainty.

"Weak leads from Wall Street and rising US bond yields add to the anxiety," Prashanth Tapse, Senior VP (Research), Mehta Equities Ltd, said.

7. Falling Rupee: The rupee, which has been under pressure due to inflation and a surge in US Treasury yields, recovered slightly, appreciating by 8 paise to 84.38 against the US dollar in early trade. However, the dollar index remains strong at 106.6, with the 10-year US bond yield at 4.44 percent, limiting the possibility of a swift reversal in FII flows.

“Given the strength of the dollar and global economic conditions, Indian markets are unlikely to see immediate relief from capital outflows,” Vijayakumar added.

Global oil benchmark Brent crude climbed 0.51 percent to USD 71.40 a barrel.