Indian Markets Slide in Early Trade as Foreign Outflows and U.S. Trade Uncertainty Weigh on Sentiment

BY COMFORT OGBONNA

India’s equity benchmarks declined in early trading on Monday, pressured by sustained foreign investor outflows and lingering uncertainty over a potential trade agreement with the United States, developments that also pushed the rupee to a fresh record low against the dollar.

The Nifty 50 slipped 0.51% to 25,913.45 points, while the BSE Sensex fell 0.46% to 84,875.85 by 9:30 a.m. IST. In the currency market, the rupee weakened further, touching an all-time low of 90.56 per U.S. dollar, extending a recent downward trend that has unsettled investors and raised concerns about imported inflation and capital flows.

Market breadth was broadly negative, with all 16 major sectoral indices trading in the red. Broader markets also came under pressure, as small-cap stocks declined about 0.2% and mid-cap shares slid 0.5%, reflecting a cautious mood among investors amid global and domestic headwinds.

Market participants continue to focus on the absence of clarity around a U.S.-India trade deal, which analysts say is weighing heavily on sentiment. According to VK Vijayakumar, chief investment strategist at Geojit Investments, the prolonged uncertainty is affecting India’s exports to the United States, contributing to a widening trade deficit and accelerating depreciation in the rupee. He added that these factors have emerged as a major drag on equity markets in recent weeks.

The pressure intensified after the United States imposed steep tariffs on certain Indian goods earlier this year, a move partly linked to India’s continued purchases of Russian oil. India’s chief economic adviser said last week that a trade agreement is unlikely to be finalized before March, dampening hopes for a near-term resolution and reinforcing investor caution.

Foreign institutional investors remained net sellers, offloading shares worth about 11.1 billion rupees ($122.6 million) on Friday, according to provisional data. This marked their sixth consecutive session of selling, taking total foreign outflows for December to roughly $2 billion, a trend that has weighed heavily on heavyweight stocks and the broader market.

Financial stocks, which have significant foreign investor ownership, were among the worst performers. The financial services index fell about 0.5%, making it the biggest drag on the Nifty as concerns over capital flows and currency weakness persisted.

On the stock-specific front, Oil and Natural Gas Corp fell around 3%, emerging as the top loser on the Nifty. The decline followed Axis Capital initiating coverage on the state-run company with a “sell” rating, citing falling oil production levels and a subdued outlook for global oil prices. In contrast, KEC International rose 3.5% after announcing it had secured new orders worth 11.5 billion rupees ($126.9 million) across its transmission and distribution segment as well as its civil business, offering a rare bright spot in an otherwise weak market session.