Sensex, Nifty today: Stock market drops for 4th day; here's why

Benchmark indices Sensex and Nifty gave into the global selloff amid a rise in dollar index and relentless foreign outflows. The domestic earnings season is nothing to write home about and its impact is already visible on earnings downgrades. Globally, there are concerns over the US President-elect Donald Trump's potential aggressive trade policies. This has led to strengthening of dollar and a fall of rupee to fresh low earlier today, which triggered fears of further foreign outflows.  Add to this, investors are also dialling back expectations of US Fed rate cuts.

At 1.30 pm, most European markets were trading about 1 per cent lower, following up to 3 per cent slide in Asian markets today. There are concerns that the rupee may depreciate 8-10 per cent further under the Trump administration.

Slipping below the 79,000 mark, the BSE Sensex fell 696.67 points, or 0.88 per cent, to 78,799.48. Bank stocks HDFC Bank and State Bank of India contributed most to the Sensex fall. NTPC, Tata Motors and Bajaj Finance also contributed to the decline.

The NSE Nifty lost the psychological mark of 24,000 and was later trading at 23,930.40, down 210.90 points or 0.87 per cent.

Significant FPI outflows have historically led to sharp corrections in the Indian markets. In most instances wherein the Nifty 50 has declined over 5 per cent in a month, FPI flows have been negative, JM Financial said.

"Intense selling across FIIs can be attributed to: (1) a weak earnings season; (2) an overvalued Indian equity market; (3) flow of foreign capital into other markets. (China, Japan and Taiwan have seen inflow of foreign capital)," it said.

V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services said the relentless selling by FPIs has been favouring the bears and pulling the market down.

"It is important to note that the intensity of FII selling is coming down (FPI inflows stood at Rs 2,026 crore on Monday) and the inflows into mutual funds is steadily increasing which will enable DIIs to continue buying," V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said.

Morgan Stanley in a strategy note said the Indian market has compounded well over time in both rupee and dollar terms, ranking among the best performing stock markets worldwide over time. It expects returns to moderate given the starting point but remain robust.

"In our base case, Indian equities likely compound in low double digits over the coming decade. As we think the rate of rupee depreciation versus the US$ is likely to moderate, dollar returns are unlikely to be significantly different," it said.

Akshay Chinchalkar, Head of Research at Axis Securities said Nifty was caught in no-man's land between resistance at 24,360 and support at 24,000, which is in tune with the market volatility. He noted had not been able to trend in either direction since the October 25 low of 24,073.

"Yesterday's rally in the index was quickly sold into and that resulted in the daily candle tracing a long upper shadow that shows selling pressure persists at higher levels. The Bank Nifty has been an outperformer relative to the nifty lately, and this is likely to continue based on index options positioning and the fact that the banks-to-nifty ratio is poised to break above a falling trendline from the late May highs," he said.