Renewed fears of Fed tapering its economic stimulus in the coming months led to flight of capital from emerging markets and saw the Nifty and the Sensex losing over 1.9 per cent at the closing session on Thursday.

The 30-share BSE index Sensex was down 406.08 points (1.97 per cent) at 20,229.05 and the 50-share NSE index Nifty was down 123.85 points (2.02 per cent) at 5,999.05.

The negative mood did not spare any particular sector and affected the banking (2.49 per cent), capital goods (2.37 per cent), realty (2.29 per cent) and power (2.06 per cent) sector stocks the most.

SSLT shed 3.91 per cent at Rs 179.35, HDFC was down 3.61 per cent at Rs 779.40, L&T lost 2.86 per cent at Rs 948.35, BHEL shed 2.7 per cent at Rs 137.15 and NTPC was down 2.63 per cent at Rs 150.10.

The rupee was down by 34 paise at Rs 62.92 and there were reports of RBI trying to shore up the INR against the greenback.

Fed minutes

A record of the minutes of the Fed Reserve meeting, held on October 29-30 and released yesterday, revealed that there was some common view among the members of the Feb Reserve to begin reducing the bond-buying programme in the near future if there were signs of improvement in the US job market.

There were reports that this could be considered even in the absence of job market perking up.

Bond-buying programme

The Fed's bond-buying programme, under which it was buying bonds worth $85 billion every month, was aimed at keeping the long-term interest rates low to give a push to spending with a view to accelerate growth.

After the report was released, the Dow ended yesterday with a loss of 66 points. European stocks declined and emerging market currencies weakened as a gauge of Chinese manufacturing missed estimates and the Federal Reserve signalled stimulus may be reduced in coming months. Asian stocks were also down.

Wednesday’s minutes of the US Federal Reserve’s Open Market Committee meeting said: “Taking into account the extent of federal fiscal retrenchment over the past year, the committee sees improvement in economic activity and labour market conditions since it began its asset purchase programme as consistent with growing underlying strength in the broader economy. However, the committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the committee's dual mandate (of maximum employment and price stability).''

(This article was published on November 21, 2013)
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