Sensex, Nifty fall again amid continued tariff-related uncertainties; investors await Federal Reserve decision

Equity markets continued to fall on Tuesday. Following the 610 points decline on Monday, the BSE Sensex fell a further 436 points on the day as foreign institutional investors continue to sell amid global uncertainties and US President Donald Trump signalling fresh import tariffs on agricultural imports, including on Indian basmati rice.

After touching all-time high of 86,159.02 on December 1, the Sensex has fallen back to 84,666.28 as of Tuesday’s close. The NSE Nifty 50 also fell 121 points or 0.5 per cent to end the session at 25,839.65.

In the last two sessions alone, the Sensex has fallen over 1,000 points, in contrast to the optimism that had driven the benchmark index to a life high just at the beginning of this month. What’s driving the decline?

“Investors stayed cautious ahead of the US Federal Reserve rate decision and lingering uncertainty around a potential US-India trade agreement. Sentiment was further pressured by reports that US President Trump may consider imposing new tariffs on Indian rice, signalling that trade negotiations remain unresolved,” said Siddhartha Khemka, head of research, wealth management, Motilal Oswal Financial Services.

The Federal Reserve’s policy committee meets this week over December 9-10 and expectations are that it will reduce the key interest rate to support a deteriorating US jobs market. Last week, the Reserve Bank of India had also slashed its repo rate by 25 bps, amid extremely low inflation and signs of growth slowing some what next year.

Amid the uncertainties, foreign institutional investors have continued to pullout from Indian equity markets. So far in December, FPIs have now sold Rs 11,924 crore worth stocks, taking their total selling to almost Rs 1.56 lakh crore in 2025, compared to a marginally positive Rs 427 crore investment in 2024, according to data from NSDL.

The FII sell-off has continued to put pressure on the rupee. On Tuesday, the rupee was trading lower in the morning session at around 90.14 to the US dollar, but staged a recovery later in the day to provisionally close at around 89.88, aided by lower crude oil prices and unwinding long dollar positions, analysts said.

Technology, pharma, automobile and fast moving consumer goods stocks were among the key losers of the day. Banks ended mixed, with some like State Bank of India, Axis Bank and NBFC Bajaj Finserv closing in the green, while HDFC Bank, Kotak Bank and Bajaj Finance ended in the red.

“For import-heavy sectors – autos, electronics, chemicals, pharma APIs, and aviation – every bout of currency volatility lifts input costs, squeezes EBITDA margins, and disrupts pricing strategy. Exporters may benefit on translation, but the gains are uneven and often offset by higher hedging costs and slower global demand,” said Nikunj Saraf, CEO of Choice Wealth.

Constant rupee swings also complicate inventory planning and raise working-capital requirements, especially for companies dependent on dollar-linked raw materials, he added.

Notably, while the largecaps ended lower, the BSE Midcap index rose 0.6 per cent, while the smallcap index jumped 1.3 per cent.

As such, while the Sensex is up close to 8 per cent year-to-date, the midcap index is down 1.3 per cent and the smallcap index has slumped over 9 per cent.

Khemka expects the headline indices to remain range-bound in the near-term, with stock-specific action and the broader market recovery likely to continue. All eyes will now be on Wednesday's Federal Reserve decision before FIIs wind down for the Christmas break and then as the new year starts, investors will start looking for fresh queues from the earnings season that will kick in.