The domestic equity market ended in the red, tracking weak global cues after strong US macroeconomic data dented hopes of a slower rate hike by the US Fed.
"US services industry activity unexpectedly picked up in November and employment rebounded. It was the latest data showing economic momentum that could push the Federal Reserve to tighten policy further, and it followed a robust US payrolls report for November, reported Reuters.
Asian markets ended mixed; Korea's KOSPI fell more than a percent while China's Shanghai Composite Index ended flat.
The index closed 208 points, or 0.33 percent, lower at 62,626.36. The Nifty50 settled at 18,642.75, down 58 points, or 0.31 percent.
In sync with the benchmarks, BSE Midcap (down 0.53 percent) and Smallcap (down 0.32 percent) also ended in the red.
"Weak sentiment prevailed through the session as investors offloaded shares in rate-sensitives such as banking, automobile and realty stocks on the eve of RBI's credit policy announcement. In the past we have seen investors turning cautious ahead of a key event and booking some profit to avoid getting caught off guard," said Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities.
"If the rate hike is above the Street expectations, investors may press the panic button, which could accelerate the selling pressure. The currency market too witnessed hectic activity as the rupee breached the 82 mark, fuelling concerns of overseas investors cutting their positions in local equities," said Chouhan.
Shares of Hindustan Unilever, UltraTech Cement and Power Grid closed as the top gainers in the Sensex index. Conversely, those of Tata Steel, Dr Reddy's Labs and Infosys closed as the top laggards.
Barring Nifty PSU Bank (up 1.26 percent), FMCG (up 0.30 percent) and Oil & Gas (up 0.22 percent), all sectoral indices ended in the red, with Nifty IT (down 1.45 percent) and Media (down 1.02 percent) falling more than a percent each.
Oil prices were volatile after the implementation of sanctions on Russian oil eased concerns about oversupply while a further relaxing of China's Covid curbs boosted the demand outlook. Brent Crude traded below the $85 per barrel mark.
The rupee fell 82 paise to close at 82.62 per dollar as the greenback traded higher after robust US services data bolstered expectations for higher interest rates from the US Federal Reserve.
Technical views by experts
Chouhan observed currently, the market is trading near the 10-day SMA (simple moving average) indicating a strong possibility of a trend reversal in the near future.
"For traders, 18,700 would be the key level to watch out for, as above the same we could see a fresh uptrend rally till 18,800-18,850. On the flip side, a fresh round of selling pressure is possible only after the dismissal of 18,600, and below the same, the index could slip till 18,500-18,480," said Chouhan.
Rupak De, Senior Technical Analyst at LKP Securities said as investors mostly remained on the sidelines as they preferred waiting for the RBI monetary policy announcement.
"The Nifty found support around the previous low before closing a bit higher. The trend may remain sideways as long as the index remains within the bands of 18,600-18,800. Any decisive move on either side will induce a directional move," said De.
Key market data
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