The twin whammy of US Fed continuing to trim its bond-buying programme further and not probably wait for the unemployment rate to reach 6.5 per cent before beginning to raise the interest rates sent the US markets downward yesterday, the effect of which spread to the global markets today.

While taper in itself created jitters in the global market, creating fears of large-scale FII outflows from the emerging markets, what has added to the nervousness of the markets is the fear that raising interest rates in the US sooner than expected may add to the intensity of the sell-off in EMs.

The Sensex and the Nifty fell over 0.9 per cent at the closing session on Thursday. The 30-share BSE index Sensex was down 186.33 points or 0.9 per cent at 20,536.64 and the 50-share NSE index Nifty was down 61.3 points or 1.00 per cent at 6,091.45.

Sectoral indices

Among BSE sectoral indices, banking, metal, FMCG and oil & gas indices fell the most by 1.63 per cent, 1.01 per cent, respectively, 0.91 per cent and 0.89 per cent, respectively. Only power and capital goods indices were up 0.24 per cent and 0.12 per cent, respectively.

Gainers, losers

Dr Reddy's, Bajaj Auto, Tata Power, BHEL and L&T were the top five Sensex gainers, while the top five losers were ICICI Bank, Bharti Airtel, SBI, Tata Steel and HDFC.

Both European and Asian stocks fell, commodities dropped and Australia’s dollar weakened as a private index on China’s manufacturing dropped to a seven-month low.

Fed bond-buying

Of course, Fed's Jan meeting decision is now history in that the market has already factored in its last month decision to further cutback its monthly bond purchase. But what probably the market was looking for was a peek into the Fed's thinking as to how it planned to go about it in the future.

The minutes of the January meeting showed that the Fed may not wait for the unemployment rate to decline to 6.5 per cent before it begins raising interest rates which raises the possibility of interest rates in the US inching up sooner than expected.

And that unnerved the market players since the Fed has been reassuring that it would keep the interest rates very low for a while waiting for strong indications that the US economy was firmly on the saddle.

The Fed has reduced its bond-buying to $65 billion/month from $85 billion/month since it began its rollback and the US Fed Jan meeting minutes showed that it had decided to accelerate rollback of its bond buying programme, media reports indicated.

Morgan Stanley report

A Morgan Stanley report on Indian consumer sentiment has revealed that the FMCG business would be driven by growth in rural areas.

It said: “ Rural growth will continue to outpace urban as there is a strong trend of mix improvement, especially in rural markets. Stronger volume growth for HUL from here, led by improved performance in mass market brands. P&G is performing well across categories. Price tiering strategy has worked well. Regional/emerging brands are likely to show improved performance over the next 12 months. Expect a step up in competitive intensity, but P&G and HUL are doing well, so it’s unlikely to be irrational. Middle-income Indian consumers are more value-conscious than just price-conscious – there is real opportunity for a rapid rise in home and personal care profit pools.”

(This article was published on February 20, 2014)
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