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A warning by the US Federal Reserve that it would raise interest rates earlier than expected spread gloom across stock markets globally. After the tech-heavy Nasdaq index crashed 500 points in the US, most markets in Asia followed suit. India was no exception with the Sensex and the Nifty falling by more than 1 per cent ending the four-day winning streak.
The Sensex was down 621 points to close at 59,601. The Nifty index fell by 179 points to close at 17,749. The meeting minutes released by the Federal Reserve indicated that it might not only raise interest rates sooner than expected but could also reduce its overall asset holdings to tame high inflation.
The disclosures also had an impact on the government securities (G-Sec) market, with the 10-year yield hardening to close at 6.5255 per cent against the previous close of 6.5083 per cent. Market experts expect the RBI to cap rising yields by conducting an Operation Twist, entailing the purchase of G-Secs of longer maturities and selling equal amount of G-Sec of shorter maturities.
S Ranganathan, Head of Research at LKP Securities, said, “The day witnessed a Gap-Down opening on the back of weak global cues and hawkish FoMC minutes that saw the US 10-year yield rising to 1.7 per cent.”
Third wave impact
The third wave of Covid also hangs like a cloud over the markets, experts said. India reported a jump of nearly 50,000 new cases in a single day on Thursday. The situation is worse in the US and European countries where lakhs are testing positive every day. This can affect consumption and public spending and hence trade. But markets are not very worried as of now as governments are not keen on imposing lockdowns, experts said.
Analysts are looking at Thursday’s fall as a mere pull back after a sharp rally of the past few days.
“While the market trend might be volatile in the near term on account of potential risks from the Omicron variant, the upcoming Budget and fragile global cues, in the long run, strong corporate earnings along with positive macro-economic data would hold the key to market direction. We remain optimistic and expect Nifty to deliver 12-15 per cent returns in 2022, supported by continuation of economic recovery and strong earnings growth,” said Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services.
“Markets may see further consolidation. However, the bias would remain on the positive side till Nifty holds in the 17,400 zone. Apart from global cues and Covid news, the earnings-related updates would keep the volatility high. Traders should continue with a positive yet cautious approach and focus more on sector/stock selection,” said Ajit Mishra, VP - Research, Religare Broking.
FPIs on selling spree
Foreign portfolio investors (FPIs) sold index futures worth ₹3,013 crore on Thursday, per stock exchange data. In the stock futures segment, they were net sellers for ₹ 1,249 crore. Thursday’s selling makes FPIs net sellers in both index and stock futures for this month for ₹ 1,172 crore and ₹3,247 crore, respectively.
Cash market figures for Thursday were still awaited from the exchanges. The FPI selling has kept the markets from a runaway rally, as growing domestic participation has been a key factor for the recent sharp upside in the markets. While Dow Jones and S&P indices are trading near their lifetime highs, Indian markets are still 3-4 per cent short of that.
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