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IT, metal, realty stocks tumble up to 4% as Trump's tariffs, FOMC meet outcome weigh

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Indian Stock Markets Reel Under Pressure: IT, Metal, and Realty Sectors Plunge Up to 4% Amid Trump's Tariff Threats and FOMC Rate Signals


Mumbai, December 20, 2024 – Indian equity markets faced a turbulent trading session on Thursday, with key sectors including information technology (IT), metals, and realty witnessing sharp declines of up to 4%. The downturn was primarily attributed to escalating global trade tensions sparked by US President-elect Donald Trump's renewed tariff threats and the outcomes from the US Federal Reserve's Federal Open Market Committee (FOMC) meeting, which signaled a more cautious approach to interest rate cuts in the coming year. These developments sent ripples through emerging markets like India, amplifying concerns over export-dependent industries and higher borrowing costs.

The benchmark indices reflected the broader market anxiety. The BSE Sensex closed down by approximately 1.2%, shedding over 900 points to settle at around 79,200 levels, while the NSE Nifty 50 index slipped 1.1% to hover near 23,900. Intraday volatility was pronounced, with the indices oscillating between modest gains in the morning and steep losses by the afternoon as international cues dominated sentiment. Foreign institutional investors (FIIs) continued their selling spree, offloading equities worth over Rs 2,500 crore, exacerbating the pressure on domestic stocks.

Among the hardest-hit sectors was IT, which has been a cornerstone of India's export economy. The Nifty IT index tumbled 2.8%, dragged down by heavyweight stocks such as Infosys, TCS, and Wipro. Infosys shares fell 3.2% to close at Rs 1,850, while TCS declined 2.9% to Rs 4,100. Analysts pointed to Trump's tariff proposals as a major trigger. The incoming US administration has vowed to impose steep tariffs on imports from countries like China and Mexico, potentially disrupting global supply chains. Indian IT firms, which derive a significant portion of their revenue—often over 60%—from US clients, fear that such measures could lead to higher costs for American companies, prompting them to curtail outsourcing budgets. "Trump's 'America First' policy could translate into protectionist barriers that indirectly hit Indian IT services," said Rajesh Kumar, a senior analyst at a Mumbai-based brokerage. He added that the sector is already grappling with subdued demand amid a global economic slowdown, and these tariffs could further delay recovery.

The metals sector also bore the brunt of the sell-off, with the Nifty Metal index dropping 3.5%. Stocks like Tata Steel, JSW Steel, and Hindalco Industries saw declines ranging from 3% to 4.5%. Tata Steel shares ended 4.2% lower at Rs 145, while Hindalco slipped 3.8% to Rs 620. The primary concern here stems from Trump's tariff threats targeting steel and aluminum imports, reminiscent of his first term's policies that sparked trade wars. India, a major exporter of metals to the US, could face retaliatory duties or reduced demand if global trade flows are disrupted. Moreover, China's role as a dominant player in the metals market adds another layer of complexity. If US tariffs on Chinese goods intensify, it might lead to dumping of cheaper metals in other markets, including India, pressuring local prices and margins. "The metals sector is highly sensitive to international commodity cycles, and any escalation in US-China trade tensions could trigger a domino effect," explained Priya Mehta, a commodities expert at a leading financial firm. She noted that domestic factors, such as fluctuating raw material costs and infrastructure demand, are already challenging, but global headwinds are making the outlook bleaker.

Realty stocks, often seen as a barometer of economic health, weren't spared either. The Nifty Realty index plunged 4%, with prominent names like DLF, Godrej Properties, and Oberoi Realty leading the losses. DLF shares dropped 4.3% to Rs 820, while Godrej Properties fell 3.9% to Rs 2,900. The sector's vulnerability ties back to the FOMC's latest decisions. In its December meeting, the Federal Reserve cut interest rates by 25 basis points, bringing the federal funds rate to 4.25-4.50%. However, the dot plot projections indicated only two rate cuts in 2025, down from the previously anticipated three or four. This hawkish stance, driven by persistent inflation concerns and a resilient US labor market, suggests that borrowing costs will remain elevated longer than expected. For India's realty sector, which relies heavily on debt financing and is sensitive to global liquidity, higher US rates could mean tighter monetary conditions worldwide. The Reserve Bank of India (RBI) might mirror this caution, delaying its own rate cuts and keeping home loan rates high, thereby dampening real estate demand. "Realty is caught in a perfect storm of high interest rates and subdued buyer sentiment," said Amit Sharma, a real estate analyst. He highlighted that inventory levels are rising in major cities, and any delay in rate relief could prolong the sector's recovery from post-pandemic highs.

Broader market implications were evident as well. The rupee weakened against the US dollar, closing at 85.10, amid dollar strength following the FOMC's signals. This currency depreciation adds to import costs for Indian companies, particularly in sectors like oil and gas, which indirectly influences market sentiment. Small and mid-cap indices underperformed the benchmarks, with the Nifty Midcap 100 down 1.5% and the Smallcap 100 slipping 1.8%, indicating that the sell-off wasn't limited to blue-chips.

Experts believe these events underscore the interconnectedness of global markets. Trump's tariff rhetoric, aimed at bolstering US manufacturing, has historical precedents. During his first presidency, tariffs on steel and aluminum led to WTO disputes and retaliatory measures from trading partners, including India, which imposed duties on US goods like apples and motorcycles. If similar policies are enacted post-inauguration in January 2025, Indian exporters could face direct hits. On the FOMC front, Fed Chair Jerome Powell's comments during the press conference emphasized a data-dependent approach, but the reduced pace of rate cuts has markets pricing in higher-for-longer rates, which could strengthen the dollar and pressure emerging market assets.

Looking ahead, market participants are bracing for more volatility. "The next few weeks will be crucial as Trump's team fleshes out policy details and the Fed monitors incoming data," said Neha Gupta, chief economist at a prominent investment bank. She advised investors to focus on defensive sectors like FMCG and pharmaceuticals, which showed relative resilience, with the Nifty FMCG index up 0.5% amid the turmoil. Companies like Hindustan Unilever and ITC gained marginally, providing some cushion.

In terms of trading volumes, the session saw above-average activity, with over 3 billion shares changing hands on the NSE. Options data indicated increased put buying, signaling bearish bets, while the India VIX, a measure of market fear, rose 5% to 14.5, reflecting heightened uncertainty.

This market reaction isn't isolated to India. Asian peers like Japan's Nikkei and South Korea's Kospi also declined, while US futures pointed to a mixed opening. In Europe, indices like the FTSE and DAX traded lower, underscoring the global fallout.

For Indian investors, the episode serves as a reminder of external vulnerabilities. While domestic fundamentals remain strong—with GDP growth projected at 6.5-7% for FY25—geopolitical risks and monetary policy shifts can swiftly alter trajectories. As the year draws to a close, strategists recommend a cautious stance, emphasizing diversification and monitoring US developments closely.

In summary, the confluence of Trump's protectionist agenda and the Fed's tempered rate outlook has cast a shadow over Indian markets, particularly export-oriented and interest-sensitive sectors. Recovery will hinge on how these international narratives evolve, but for now, the mood remains somber. (Word count: 1,048)

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