Why is the market down today? Fed Meet and FII Activity

Indian markets have seen a noticeable fall over the past two trading sessions. Both Sensex and Nifty have slipped from recent highs, and the pressure has been visible across large caps, mid caps and small caps. While short term dips are common, it is useful to understand what is driving the current weakness and how global and domestic factors are shaping market sentiment.

Caution Ahead of a Key US Federal Reserve Meeting

The most important trigger behind the recent market fall has been the upcoming US Federal Reserve meeting. Investors across the world are waiting to hear whether the Fed will signal rate cuts, maintain its current stance or hint at a longer period of tight monetary conditions. These decisions hold significant influence over global capital flows.

When the Fed maintains a cautious tone, it usually leads to a risk off sentiment where investors reduce exposure to emerging markets like India. This uncertainty has increased volatility in Indian markets. Traders prefer to stay defensive until there is clarity on interest rate direction and inflation expectations. This global hesitation has been one of the strongest reasons behind the decline over the last two days.

Heavy Selling by Foreign Institutional Investors

Foreign Institutional Investors have begun the month on a strong selling spree, which is adding direct pressure on Indian equities. As per the latest available data, FIIs have recorded net outflows of ₹11,059.21 crore in December 2025. Such a sharp withdrawal within the first few trading sessions of the month is a clear sign of risk aversion among global investors.

This selling comes at a time when the rupee has weakened beyond the 90 per US dollar mark. A falling currency reduces returns for foreign investors when they convert their holdings back to dollars, making Indian assets less attractive in the short term. The combination of currency weakness and uncertainty around the upcoming Fed decision has pushed FIIs to cut exposure aggressively, amplifying the market decline.

Global Market Weakness Adding to Pressure

The correction in Indian markets is also influenced by weakness in other Asian markets. Over the past two sessions, several major Asian indices were trading in the red. During such periods of global nervousness, emerging markets tend to mirror the broader sentiment.

Rupee Under Pressure Near Record Lows

The Indian rupee has been under strain and hit a historic level of ₹90.14 per US dollar on December 3. It weakened further to around ₹90.42 the next day. Such a fall makes India less attractive to foreign investors and increases the cost pressures for import heavy sectors. The sharp depreciation has added another layer of uncertainty to the market.

Profit Booking After Recent Highs

Markets have rallied strongly in recent months. After such a run-up, some amount of profit booking is expected. Over the last two sessions, this has contributed to the market decline. On December 8, the Sensex fell over 600 points and the Nifty dropped below the 26,000 mark, indicating that investors were locking in gains.

Broad Based Selling Across Sectors

The decline has not been limited to any single sector. Large caps, mid caps and small caps have all seen pressure. This shows that the fall is driven more by overall sentiment rather than sector specific news.

What This Means for Investors

The last two days reflect a mix of global caution led by the Fed meeting, heavy FII selling, currency weakness and natural profit booking. These factors may continue to influence markets in the near term, but they do not change the underlying strength of the Indian economy.

Disciplined investors often treat such phases as opportunities to review their portfolios rather than react emotionally. Once global clarity emerges and currency stabilises, volatility is likely to reduce.

Key Takeaways for Readers

• The upcoming US Federal Reserve meeting is shaping global sentiment, and the lack of clarity on interest rates has pushed investors toward a risk off approach. This is one of the main reasons behind the recent market volatility.
• Foreign Institutional Investors have turned sharply negative, with net outflows of ₹11,059.21 crore in December. Their selling, combined with a weakening rupee, has added direct pressure on Indian equity prices.
• The rupee falling beyond 90 per US dollar has amplified foreign selling. Currency weakness not only affects investor returns but also raises broader concerns about economic stability in the short term.
• Market declines have been broad based, affecting large caps, mid caps and small caps alike. This shows that the correction is driven by sentiment rather than company specific fundamentals.
• Short term corrections like these often reflect global uncertainty rather than structural issues in the Indian economy. Once there is clarity from the Fed and stability in foreign flows, markets typically settle and rebuild direction.

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