The benchmark Nifty 50 and Sensex fell around 0.5% each on Tuesday, marking their third consecutive session of decline. The drop was primarily driven by a 0.6% fall in the heavyweight financial sector, the largest drag on the indices.

Key Drivers of the Decline

• Bank Weight Rejig: HDFC Bank and ICICI Bank dropped approximately 1% each after the National Stock Exchange revised the Nifty Bank index criteria, capping the combined weight of the top three lenders at 43%. This will reduce the weightage of both banks in the index.
• Foreign Outflows & Rupee Weakness: Broader market sentiment was weighed down by concerns over foreign capital outflows, as the Indian rupee hit a fresh all-time low against the U.S. dollar.
• Broad-Based Selling: Selling pressure was widespread, with 15 out of 16 major sectors closing in the red. Small-cap and mid-cap indices also declined by 0.5% and 0.2%, respectively.
• Stock-Specific Move: Bajaj Housing Finance shares fell 6% after its parent, Bajaj Finance, announced plans to sell a 2% stake in the housing financier.

Market Outlook

Investors are now awaiting the Reserve Bank of India's monetary policy decision later this week and further updates on the India-U.S. trade deal for directional cues. This comes after the benchmarks had hit record highs just a day earlier on Monday.