Powell speech sends Indian financial markets into tailspin

US Fed Chief’s hawkish statement over the weekend, which indicated that a 75 basis points rate hike is almost a done deal, had a ripple effect on Indian financial markets, with Indian equities ending in the red, Rupee sinking to a record low and bond yields rising.

Powell’s statement at Jackson Hole, Wyoming, that restoring price stability will likely require maintaining a restrictive policy stance for some time was interpreted by market players to mean that a third 75 basis points hike in the Fed Funds rate was in the offing. The historical record (inflation) cautions strongly against prematurely loosening policy, he added.

The 30-share bellwether BSE Sensex crashed 1,466 points intraday before closing at 57,972.62, down 861.25 points over the previous close.

The 50-share Nifty sank 392.7 points intraday before closing at 17,312.90, down 246 points over the previous close.

Out of 30-shares comprising Sensex, 24 ended in the red, with the rest making gains.

Shares of companies that fell more than 2 per cent include Tech Mahindra, Infosys, Wipro, HCL Technologies, TCS, Kotak Bank, Tata Steel and Axis Bank. Shares of Maruti, Asian Paints and Nestle gained more than 0.5 per cent.

Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities, underscored that investors had already got the wind of bearish undertone for the start of the week, after the US Fed chairman’s speech on Friday talked about further rate hikes going ahead to tame inflation.

“And as expected, Sensex crashed nearly 1,500 points in early trades before recovering some ground to close off its day’s low. Traders are expecting more bouts of volatility in coming sessions on concerns that continuation of rate hikes in the US could pose a threat to the global economy and hurt growth prospects. “

Prashanth Tapse, Senior VP (Research), Mehta Equities, said there was a sea of red at Dalal Street as Fed choses inflation flight over growth.

“The Nifty ended deep in red as bears were seen in total control after Jerome Powell at his Jackson Hole appearance mentioned that interest rates may continue to rise to combat inflation.

“Technically speaking, the Nifty line on the sand is at the 17161 mark. Nifty‘s major support is at 17161 mark and below the same, the next big support is at 16911 mark.”

Rupee at record low

The Rupee breached the 80 mark, sinking to a record low of 80.1250 per Dollar intraday, due to hawkish comments by Powell leading to strengthening of the Dollar Index (DXY). However, the Indian unit recovered to close at 79.9675 per Dollar, down about 10 paise over the previous close of 79.87.

Forex dealers said if the Fed presses ahead with 75 bps rate hike, the Rupee will come under pressure.

Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services, said: “Rupee fell to fresh all-time lows after hawkish comments from the Fed Chairman at the Jackson Hole symposium. Fed Chaiman said the U.S. economy will need tight monetary policy “for some time” before inflation is under control. Powell gave no indication on Friday of how high rates might rise before the Fed is finished, only that they will go as high as needed.

“This week focus will be on the employment number that will be released from the US. We expect the USDINR(Spot) to trade sideways with a positive bias and quote in the range of 79.70 and 80.50.”

Powell’s comments also cast a shadow on the government securities market. Yield of the 10-year benchmark G-Sec rose about 4 basis points to close at 7.2534 per cent (previous close: 7.2173 per cent). Price of this security declined about 24 paise to close at ₹95.195 (₹95.43).

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