Globally, the fear of an aggressive interest rate hike by the US Federal Reserve was weighing on the markets for the past many days. But India’s key equity indices Sensex and Nifty cracked on Wednesday as the RBI surprised with a rate hike ahead of the Fed.

As the RBI hiked rates to save the rupee from an onslaught in case of aggressive Fed rate hike, the Sensex and Nifty fell by 2.3 per cent. Sensex fell 1,306 points to close at 55,669 and the Nifty fell by 391 points to close at 16,677.

Analysts say the Nifty index can fall to 16,100 or 15,400 levels. Brokers said that market regulator SEBI’s new rules effective May 1 with regard to segregation of margin for equity trading, wherein the ratio of cash has gone up to 50 per cent, too was impacting markets. .

Key factors

Interest rate hike, spike in commodity prices and hence inflation due to sanctions on Russia and unrelenting Covidwave in China are three of the key negatives that plague the markets currently, experts told BusinessLine. The three issues have forced foreign portfolio investors (FPIs) to continuously sell in India’s markets. On Wednesday, FPIs sold stocks worth ₹3,288 crore in the cash markets. In the past nine months, FPIs have sold stocks worth more than $20 billion in cash and derivatives markets combined.

“In the US, the Nasdaq index has gone into a bear market. The fears of a major fall in the US markets due to Fed rate hikes, bond market reaction and global recession, geopolitical risk is heightened and are weighing on sentiments. Inflation is out of control. In such a scenario, Nifty has broken the 16800 support for the third time since October 2021. After three unsuccessful attempts to hold above 18000 the Nifty appears to have rolled over into a more sustained decline. The Nifty can fall to 16100 or even 15400 in the coming weeks,” said Rohit Srivastava, chief strategist, Indiacharts.

Srivastava says reversal in markets across sectors comes on the back of a globally coordinated policy to raise rates in the face of rising interest rates and it has the potential to slow down the economy substantially before things improve. “The risk off mode in markets was further accentuated by the pivot in RBI’s policy from accommodative. Rising currency risks may have been behind the move. This means that there is upward pressure on the USD/INR as well,” said Srivastava.

In the US, the Nasdaq index is down nearly 23 per cent from the lifetime high levels. The Dow Jones and S&P are down nearly 8 per cent from the highs. After Wednesday’s fall, the Nifty and Sensex are down more than 10 per cent from their lifetime highs.

Elevated levels of crude oil prices have resulted in sustained inflationary pressure globally. Currency of China and Japan have depreciated by 4 percent and 6 percent respectively over the last month putting pressure on other emerging market currencies too. Rupee has depreciated the least by only 1.1 per cent in the past month. RBI believes that a further downward pressure on rupee could spark worries inflation and hence the Governor moved to hike the rates. The US is expected to hike key interest rates by 50 basis points on Wednesday.

US futures indicated that the markets could go into a negative zone on the opening.