Indian equities ended a volatile Thursday session with modest gains, breaking a four-day losing streak even as the rupee hovered near record lows and foreign investors continued to pull money out of Dalal Street. IT stocks led the rebound, while mid- and small-caps and financials lagged, keeping overall sentiment cautious ahead of the Reserve Bank of India’s (RBI) crucial policy decision on Friday.
Headline indices: Mild green close after choppy trade
By the closing bell on December 4, 2025:
- BSE Sensex rose about 158 points (≈0.19%) to close near 85,265.
- NSE Nifty 50 added roughly 48 points (≈0.18%) to finish around 26,034. [1]
This bounce comes after four straight sessions of declines in which the Nifty and Sensex had lost around 0.9% and 0.7%, respectively, from their recent record highs. [2]
Intraday, both benchmarks swung between gains and losses as traders digested a weaker currency, persistent foreign institutional investor (FII) selling, and mixed global cues. Live market blogs from major financial portals described a “choppy” session that eventually resolved into a late recovery. [3]
Opening trade: Negative start as rupee slide and FII selling weigh on sentiment
The day began on a cautious note:
- GIFT Nifty futures were indicating a soft start, trading about 50–55 points lower around 26,082 before the opening bell, signalling pressure after four consecutive down days. [4]
- At 9:19 am IST, Nifty 50 was around 25,956.40, down 0.11%, while Sensex hovered near 85,013, also off about 0.11%. [5]
The weak tone was closely tied to currency and flow data:
- On Wednesday, December 3, FIIs sold shares worth about ₹3,207 crore, while domestic institutional investors (DIIs) bought around ₹4,730 crore, according to National Stock Exchange data widely reported in the morning notes. [6]
- Month-to-date, FIIs have offloaded roughly ₹8,300–8,400 crore, and for calendar 2025 they are net sellers of about ₹1.5 lakh crore of Indian equities, while DIIs continue to provide counterbalancing support. [7]
Analysts quoted in early trade commentary framed the market as being pulled between:
- Negative drivers – sharp rupee depreciation, FII outflows and uncertainty around a delayed India–US trade deal.
- Positive structural factors – strong GDP growth, easing inflation and resilient corporate earnings, which are seen as supportive over the medium term despite near-term volatility. [8]
IT leads the recovery; banks and defensives lag
As the session progressed, information technology (IT) stocks took charge and flipped the indices into the green:
- The Nifty IT index gained roughly 1.2–1.4%, building on gains from the previous session as the weaker rupee boosted the earnings outlook for software exporters whose revenues are largely dollar-denominated. [9]
Key movers included:
- Tata Consultancy Services (TCS) – rose around 2%, hitting a three-month high intraday, after multiple media reports said the company is in advanced talks with OpenAI to build large-scale AI compute infrastructure in India and co-develop “agentic AI” solutions. [10]
- Reports suggest OpenAI could lease at least 500 MW of data centre capacity from TCS’s new HyperVaultplatform as part of the proposed “Stargate India” initiative, potentially making TCS a key infrastructure partner for global AI workloads. [11]
- Infosys, HCL Tech and Tech Mahindra also advanced between roughly 1–1.5%, making IT the single biggest contributor to index gains. [12]
On the other side:
- Private sector banks underperformed; Bank Nifty slipped about 0.1% as names like HDFC Bank and ICICI Bank edged lower by roughly 0.3%. [13]
- Among Nifty 50 constituents, Tech Mahindra, HDFC Life and TCS featured as top gainers, while InterGlobe Aviation (IndiGo), Reliance Industries and Hindalco were among the notable losers. IndiGo extended its slide amid massive flight cancellations and a regulatory probe into operational disruption. [14]
Sectoral performance late in the session showed:
- IT, realty and select autos in the green.
- Financials, metals and PSU banks either flat or mildly negative, reflecting ongoing caution around credit and global demand. [15]
Broader markets: Mid- and small-caps stay under pressure
Despite the headline indices finishing higher, the broader market remained soft:
- The BSE Mid-Cap index slipped about 0.19%.
- The BSE Small-Cap index fell roughly 0.3%. [16]
- Market breadth was negative on the BSE, with around 1,700 stocks advancing versus more than 2,200 declining, highlighting underlying risk-off sentiment below the large-cap benchmark layer. [17]
Small- and mid-cap (SMID) segment weakness is not new:
- Over 2025, while the Nifty 50 and Sensex are up around 9–10%, the BSE Midcap index has gained barely over 1%, and the BSE Smallcap index is down roughly 6%, according to recent market analyses. [18]
- Fund houses like Kotak Mutual Fund have publicly advised investors to temper return expectations from small-caps and maintain balanced portfolios, warning that this segment could continue to underperform larger peers in 2026. [19]
- A recent BofA strategy note echoed this, arguing that valuation expansion is limited and large caps are likely to lead returns, with the Nifty’s performance increasingly tied to earnings growth rather than further re-rating. [20]
In short, Thursday’s rebound was led by quality large caps, while broader risk appetite in smaller names remained subdued.
Rupee at record lows; FIIs remain net sellers
The Indian rupee has become the central macro story for Indian markets this week:
- On Wednesday, the rupee slipped past the 90-per-dollar mark for the first time, touching around ₹90.13 before closing just above ₹90.19, according to multiple currency market reports. [21]
- On Thursday morning, it weakened further to roughly ₹90.4–₹90.5 per US dollar, marking a new record low, before recovering later in the day to around ₹89.92 as the session progressed. [22]
Economists and market participants point to a mix of reasons:
- Sustained FII equity outflows – roughly $17 billion from Indian stocks so far this year, according to estimates cited by Reuters. [23]
- Weak portfolio and trade flows, as uncertainty around an India–US trade deal drags on and importers continue to demand dollars. [24]
- Signs that the RBI is now tolerating a weaker rupee, choosing to smooth volatility rather than defend any particular level, after previously holding the line around 88–89 per dollar. [25]
In a separate note, HDFC Bank’s treasury team warned that in the absence of a quick trade deal with the US, the rupee could drift towards 92 per dollar, even if it remains within the broad 90–92 range. [26]
For equity investors, a weaker rupee has two-edged effects:
- It supports IT and other export-oriented sectors, which was visible in today’s IT rally. [27]
- But it raises input costs for import-heavy sectors such as oil marketing, certain consumer goods, and aviation, and may eventually feed into higher inflation, complicating the RBI’s decision-making.
Global cues: Wall Street near highs, Asia mixed
External cues were supportive but not euphoric:
- Overnight, US indices – the Dow, S&P 500 and Nasdaq – closed higher, with the S&P and Dow flirting with record levels as softer US data reinforced expectations of a Federal Reserve rate cut in the near term. [28]
- Across Asia, performance was mixed:
- Japan’s Nikkei 225 rallied more than 1–2% on strong gains in robotics and chip-related stocks and speculation about a later-but-gradual rate hike path from the Bank of Japan. [29]
- South Korea’s KOSPI and some other regional markets traded in the red, reflecting profit booking and concerns about global demand. [30]
These global moves provided a positive backdrop, but local factors – rupee weakness, FII selling and the looming RBI meeting – dominated Indian market psychology.
RBI policy on December 5: Cut, pause or just a cautious signal?
The RBI Monetary Policy Committee (MPC) meets this week, with the decision due Friday, December 5. The repo rate currently stands at 5.50%, after a cumulative 100-basis-point cut since February 2025 and a pause in the August and October meetings. [31]
Forecasts are sharply divided:
- A Reuters poll of economists indicates a majority expect a 25-basis-point cut to 5.25%, with rates likely to stay there through 2026. [32]
- Domestic reports from banks like Bank of Baroda and Yes Bank argue the RBI is more likely to hold rates at 5.5% and maintain a neutral stance, given strong growth (around 8.2% in the latest quarter) and the rupee’s recent slide. [33]
Policy watchers also note:
- The rupee’s slump “complicates” the case for a cut: while growth and moderating inflation would typically support lower rates, a weaker currency raises imported inflation risks and may push the RBI to stay cautious. [34]
- Even if the RBI delivers a small cut, its commentary on the rupee, liquidity and future rate trajectory could be more important for markets than the headline move.
For equities, the short-term reaction could look roughly like this (scenario-wise, not as a prediction):
- 25 bps cut with dovish commentary – typically supportive for interest-rate-sensitive sectors (banks, NBFCs, real estate), though the rupee might remain under pressure.
- Status quo with cautious tone on rupee – could disappoint rate-cut hopefuls but reassure bond markets and foreign investors about macro stability.
Medium-term equity outlook: Still constructive, but more selective
Beyond the day-to-day swings, brokerage research remains broadly constructive on Indian equities:
- A recent Business Standard round-up of global brokerages highlighted targets such as Sensex 107,000 by December 2026, implying roughly 24% upside from current levels, driven by earnings growth and India’s relative macro strength. [35]
- At the same time, strategists at BofA and others caution that:
- The Nifty is trading slightly above long-term valuation averages,
- Return potential will increasingly track earnings growth rather than multiple expansion,
- And SMID caps, given their richer valuations and higher volatility, are more exposed to sharp corrections if domestic flows slow. [36]
Fund managers are broadly advising:
- Core allocations to high-quality large caps across banking, IT, industrials and consumer sectors.
- Selective exposure to mid-caps with solid balance sheets and earnings visibility.
- A more cautious approach to small caps, especially after their strong run in 2024 and subsequent underperformance this year. [37]
For long-term investors, today’s volatile yet modestly positive session underscores a familiar theme: macro headlines can swing sentiment in the short term, but earnings, policy stability and domestic savings flows continue to anchor the Indian market’s medium-term story.
What traders and investors should watch next
Over the coming days, market participants will closely track:
- RBI MPC decision and commentary (Dec 5)
- Rate move (cut vs pause), stance, inflation projections and any language on the rupee and capital flows.
- Rupee trajectory
- Whether the currency holds below the 90.5 level or retests new lows, and the extent of RBI’s visible intervention. [38]
- FII and DII flows
- Daily FII/DII data to see if domestic buying continues to absorb foreign selling or if redemptions broaden out. [39]
- Global central bank signals
- US Fed messaging on rate cuts and the Bank of Japan’s path on normalization, both of which influence global risk appetite and Asia FX. [40]
- Stock- and sector-specific news
Disclaimer: This article is for informational and news purposes only and does not constitute investment advice. Investors should consult a qualified financial advisor before making any investment decisions.
References
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