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The Indian benchmark indices witnessed a sharp decline on Tuesday as the Sensex tumbled more than 500 points to end trade at 84,648.12 and the Nifty closed at 25,852.10 falling by 175 points at 3:30 PM.

During early morning trade, stock markets opened lower as the Sensex opened trade at 84,894.03 or lower by 319 points and the Nifty tested 26,000 down by 96 points at 9:15 AM. 

What Are The Reasons Behind The Decline?

The rupee slipped to a fresh record low against the US dollar in early trade on Tuesday, pressured by sustained foreign fund outflows and the absence of any progress on the India–US trade deal, forex market participants said.

At the interbank foreign exchange, the domestic currency opened at an all-time low of 90.87 against the dollar, weakening by 9 paise from its previous close. It moved in a narrow band of 90.77 to 90.87 during early deals.

Traders noted that while persistent capital outflows continued to weigh on the rupee, losses were capped by a softer US dollar and a decline in global crude oil prices.

FII Outflows Continue to Weigh

Foreign institutional investors remained net sellers, offloading shares worth Rs 1,468.32 crore on Monday. This marked the 12th straight session of net outflows, adding pressure on domestic equities by draining liquidity and dampening investor sentiment.

Weak Global Cues Add to Pressure

Global market sentiment remained cautious. Wall Street futures were down by as much as 1 per cent around 9:30 am IST, indicating a weak start for US markets after equities closed lower overnight.

Asian markets also traded in the red, with South Korea’s Kospi, Japan’s Nikkei 225, Shanghai’s SSE Composite and Hong Kong’s Hang Seng all posting losses.

“Major equity indices on Wall Street closed lower amid a risk-off sentiment ahead of key economic data releases, including non-farm payrolls, retail sales, and inflation figures, which could influence the future course of monetary policy. Asian markets also opened lower, with cautious traders paring positions ahead of the Bank of Japan's crucial monetary policy decision later this week,” said Ponmudi R, CEO of Enrich Money.

Investors Await Key US Data

On the domestic front, Ponmudi said persistent FII outflows and continued pressure on the rupee near record lows remain key near-term headwinds.

Investor caution was further reinforced ahead of the release of US jobs data for November by the Bureau of Labor Statistics later in the day. The data is closely tracked for signals on the US interest rate outlook, which has a direct bearing on global capital flows into emerging markets such as India.