Indian shares fell on Thursday after the Federal Reserve forecast fewer interest rate cuts in 2025, souring risk appetite and raising concerns of further outflows, particularly from foreign investors.

The Nifty 50 declined 1.02% to 23,951.7 points, while the BSE Sensex dropped 1.2% to 79,218.05, with both indexes closing below their 50-day averages for the third straight session.

The Fed delivered a widely expected 25 basis points rate cut but forecast just two reductions in 2025, half of what policymakers anticipated in September.

U.S. rate cuts tend to help emerging markets such as India, as they can boost foreign inflows.

The Fed’s hawkish outlook has dampened foreign investors’ risk appetite for local equities, two analysts said.

Banks drag Indian shares lower, Fed outlook in spotlight

“Lower pace of rate cuts result in foreign investors going into a ‘risk-aversion’ mode and reduce inflows in emerging markets like India. Hence, markets have seen selling pressure today,” said Siddhartha Khemka, head of research of wealth management at Motilal Oswal Financial Services.

Indian benchmarks have lost over 3% each this week and are set for their first weekly decline in five. Foreigners offloaded stocks worth a net 80.06 billion rupees ($941.2 million) up to Wednesday.

Financials and IT stocks were the sectoral decliners, falling 1.2% and 1.3%, respectively.

Indian IT firms are particularly sensitive to U.S. interest rates, as they earn a significant chunk of their revenue from the region.

Metals shed 1%, tracking global peers, due to a stronger dollar, which makes it more expensive for other currency holders to buy greenback-priced commodities.

The more domestically focussed smallcaps and midcaps slipped 0.5% and 0.3%, respectively.

ICICI Bank led losses among the top five Nifty 50 heavyweights, closing 2% lower.

Bucking the trend, generic drugmaker Dr Reddy’s Laboratories ended 4% higher after Nomura upgraded the stock to “buy” from “neutral”.

Healthcare tech services provider Inventurus Knowledge Solutions ended 48% higher in its trading debut.