The domestic equity market witnessed sharp selling on Tuesday, with the benchmark indices falling as much as 1.5% in intraday trade as investors turned jittery ahead of the U.S. Federal Reserve policy decision on Wednesday. The sentiment was further dented by widening of India's trade deficit to a record $37.8 billion in November, which dragged rupee against the U.S. dollar. The Indian currency touched a record low of 84.93 against the dollar.

The BSE Sensex crashed 1,064.12 points, or 1.30%, to settle at 80,684.45, and the NSE Nifty50 ended lower by 332.25 points, or 1.35%, at 24,336. In line with benchmark indices, the broader market settled in negative terrain, with S&P BSE Midcap and Smallcap falling 0.65% and 0.5%, respectively.

The volatility index, India VIX, which gauges volatility in markets, ended 3.31% higher at 14.49 points.

The market saw broad based selling with all 30 Sensex pack stock ending in red, while 48 out of 50 Nifty stocks closed lower, barring Cipla and ITC.  Among the individual stocks, Bharti Airtel, IndusInd Bank, JSW Steel, Tata Consultancy Services, and Asian Paints were top losers, falling in the range of 2-3%.  Reliance Industries, the country’s most valued stock, ended 1.8% lower, while L&T, HDFC Bank, SBI fell up to 1.5%.

"Widespread pessimism prevails across all sectors ahead of key policy decisions from the U.S. Fed, Bank of Japan, and BoE. While the market has already factored in a 25 bps cut from the U.S. Fed, it remains vigilant for any hawkish signals. The BoJ and BoE are largely expected to maintain their current rates for the year,” says Vinod Nair, Head of Research, Geojit Financial Services.

On falling rupee, Nair said the INR has depreciated to an all-time low, and a record-high trade deficit is exacerbating the pressure. Adding to it, FII outflows persist due to rising US bond yields and a strengthening dollar, further contributing to the prevailing pessimism.

Among sectors, almost all the major sectoral indices registered profit booking at higher levels, but the PSU Bank index lost the most, shedding 1.89%. “We are of the view that the current market texture is weak, but a fresh sell-off is possible only after the dismissal of 24,275/80,500.  Below this level, the market could slip to 24,200-24,125/80,200-80,000. On the other hand, above 24,400/81,000, we could expect a pullback rally up to 24,500-24,525/81,200-81,300,” says Shrikant Chouhan, Head Equity Research, Kotak Securities.

Technically, Nifty has formed a big red candle on a daily chart, and has broken the 100-DEMA support around the 24,360 levels, indicating weakness. However, Nifty is still consolidating in the band of 24,180-24,860, either side's breakout will decide the index's future move, says Hrishikesh Yedve, AVP Technical and Derivatives Research at Asit C. Mehta Investment Interrmediates Ltd.

“In the immediate term, 24,180 will serve as significant support levels. If index sustains below 24,180, then weakness could extend towards 24,000-23,900 levels,” he adds.

Rupak De, Senior Technical Analyst, LKP Securities, opines that the short-term outlook remains weak, with the potential for a decline towards 24,200, where an initial round of support is expected. A meaningful recovery might be seen if Nifty does not break decisively below 24,200, says De.

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