The BSE Sensex continued its downward trajectory for the third consecutive session on Tuesday as spiking inflation and global concerns over the Omicron variant sapped risk appetite.
A weakening rupee and unabated foreign fund outflows added to the gloom, traders said.
The 30-share benchmark declined 166.33 points or 0.29 per cent to end at 58,117.09. Similarly, the broader NSE Nifty fell 43.35 points or 0.25 per cent to 17,324.90.
ITC was the top loser on the Sensex chart, shedding 2.73 per cent, followed by Bajaj Finance, Kotak Bank, Bharti Airtel, Reliance Industries and Bajaj Finserv.
On the other hand, PowerGrid, Dr Reddy's, Nestle India, Axis Bank, ICICI Bank and IndusInd Bank were among the winners, climbing as much as 3.84 per cent.
"Due to elevated levels of inflation and weak Asian markets, the domestic indices extended losses ahead of the US Fed policy announcement," said Vinod Nair, Head of Research at Geojit Financial Services.
"Offsetting a favourable base effect and cut in levies on fuel, India's CPI inflation rose to 4.91 per cent YoY in November as higher input costs forced producers to hike prices. Moreover, India's wholesale inflation soared to a 12-year high of 14.23 per cent YoY underpinned by mineral oil, base metals, crude petroleum and natural gas," he noted.
Ajit Mishra, VP - Research, Religare Broking, said participants are maintaining a cautious stance ahead of the US Fed meeting outcome scheduled on Wednesday.
"We reiterate our view to limit leveraged positions and maintain positions on both sides," he added.
Sector-wise, BSE telecom, auto, energy and FMCG indices slipped up to 1.37 per cent, while power, utilities, oil and gas and healthcare ended with gains.
Broader BSE midcap index ended in the red, while the smallcap gauge was positive.
Asian markets reeled after China reported its first case of the Omicron coronavirus variant amid rising COVID-19 cases in multiple countries.
Bourses in Shanghai, Tokyo, Seoul and Hong Kong ended with losses. Stock exchanges in Europe were, however, trading on a positive note in mid-session deals.
Rupee Drops By 10 Paise To Close At 75.88 Against Dollar On Inflation Concerns
The rupee on Tuesday declined by 10 paise to close at an 18-month low level of 75.88 against the US dollar due to persistent foreign fund outflows and concerns over inflation.
Muted domestic equities and the dollar demand from corporates also weighed on the local unit, analysts said.
At the interbank foreign exchange market, the local currency opened at 75.94 against the greenback. During the day, the local unit witnessed an intra-day low of 75.95 and a high of 75.83 against the US dollar.
The rupee closed at 75.88 against the dollar, a level not seen since June 22, 2020.
In the previous session, the rupee had settled at 75.78 against the greenback.
On the domestic macroeconomic front, the wholesale price-based inflation surged to more than a decade high of 14.23 per cent in November, mainly due to hardening of prices of mineral oils, basic metals, crude petroleum and natural gas.
"Rupee weakened against the US dollar following risk-off sentiments and dollar demand from corporates for dividend payments. While foreign investors remain net sellers in domestic equities and debt," said Dilip Parmar, Research Analyst, HDFC Securities.
"Overseas markets are struggling for direction, with conditions fairly quiet ahead of a FOMC meeting. Fed announcement to speed up asset purchases should continue to support the dollar while dovish decisions from RBI weighing on rupee," Parmar added.
Nish Bhatt, Founder & CEO, Millwood Kane International said that there was a broad weakness across Asian markets ahead of the US Fed's meeting that may announce an accelerated pace of liquidity tightening. A tapering by the US Fed will lead to an outflow of fund flows from emerging markets.
The inflation in the US has risen to a multi-decade high, posing a risk for the Fed to act sooner than expected.
"The weakness in the rupee is despite record RBI reserves of around USD 640 billion. The central bank has added over USD 60 billion in forex reserves in FY22. The latest retail inflation data in India hit a 3-month high," Bhatt said.
The decline in the rupee has also been driven by the fear of the rapid spread of the Omicron variant. This is post the UK PM's warning of a 'tidal wave' of new cases, and WHO stating it as a high global risk," said Bhatt.
British Prime Minister Boris Johnson on Monday confirmed the UK's first death from the Omicron variant of coronavirus, probably the first known fatality from the highly transmissible variant of COVID-19 in the world.
The next few days will be dominated by the US Fed, ECB, and BoJ as they meet to decide on their respective monetary policy. Central banks' action on rate, liquidity, and the resolve to aid recovery in growth rate will guide global equities and currencies, Bhatt added.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.01 per cent down at 96.30.
Brent crude futures, the global oil benchmark, advanced 0.35 per cent to USD 74.13 per barrel.
On the domestic equity market front, the BSE Sensex ended 166.33 points or 0.29 per cent lower at 58,117.09 while the broader NSE Nifty fell 43.35 points or 0.25 per cent to 17,324.90.
Foreign institutional investors remained net sellers in the capital market on Monday, as they offloaded shares worth Rs 2,743.44 crore, according to the exchange data.
Gold Declines Rs 68 On Muted Global Trends
Gold in the national capital on Tuesday dipped Rs 68 to Rs 47,280 per 10 gram in line with weak international precious metal prices, according to HDFC Securities.
In the previous trade, th precious metal settled at Rs 47,348 per 10 gram.
Silver, however, gained Rs 114 to Rs 60,221 per kg from Rs 60,107 per kg in the previous trade.
In the international market, gold was trading lower at USD 1,784 per ounce and silver was flat at USD 22.23 per ounce.
"Gold prices traded weak with spot gold prices at COMEX trading 0.17 per cent down at USD 1,784 per ounce on Tuesday. Gold prices kept narrow trading range on mixed global cues over stronger dollar," according to HDFC Securities, Senior Analyst (Commodities), Tapan Patel.