Indian equity benchmarks fell for the second straight day, tracking a broad sell-off in global markets after the Federal Reserve’s aggressive stance added to recession fears and an escalation in the Ukraine crisis sent world stocks to near a 2-year low.
The BSE Sensex fell 337.06 points to end at 59,119.72, and the broader NSE Nifty-50 dropped 88.55 points to close at 17,629.80, with both benchmarks extending losses from the previous session.
“Indian markets yet again showed resilience in the face of global weakness after the US Fed sounded more hawkish in its future action. Nifty opened gap down, but attempted to recover twice during the day, to finally close with loss of 86 points at 17,630,” said Siddhartha Khemka, Head – Retail Research at Motilal Oswal Financial Services.
Power Grid, HDFC Bank, HDFC, Axis Bank, Bajaj Finserv, ICICI Bank, and UltraTech Cement were the top laggards among the 30-share Sensex group. However, Asian Paints, Maruti, Titan, Hindustan Unilever, and ITC were among the winners.
“Indian markets reacted mainly to the US Federal Reserve’s hawkish undertone on interest rate that fuelled pessimism amongst the investors. As expected, banking stocks bore the brunt that led to extended correction in local benchmarks,” said Shrikant Chouhan, Head of Equity Research fir Retail at Kotak Securities.
“Recessionary fears could keep globally linked sectors like IT, metals and pharma under pressure for some time. On the other hand, consumption and crude inputs sectors like FMCG, Paints, tyres, Autos are likely to benefit from strong domestic demand and fall in commodity prices,” he added.
The rupee crashed to a new all-time low, with 81 per dollar not too far away as a dire global outlook hurt risk assets.
Major stock markets in Europe fell by more than 1 per cent after Asian markets plunged to a two-year low following a dismal Wall Street close brought on by the Fed’s rate move and revised GDP forecasts.
“Fed is delivering exactly what it said it would (with rate hikes) but the markets have pushed out the path of interest rates quite a lot,” Close Brothers Asset Management Chief Investment Officer Robert Alster said.
“All of a sudden we are entering a scenario where everything gets a lot more drawn out… It is a bit disconcerting in some respects but at least they have laid out the road map and the economy is second to monetary policy.
Still, S&P 500 futures pointed to a positive opening after the benchmark’s decline on Wednesday left it more than 20 per cent below its all-time high in January.
“The Fed is engineering a hard landing — a soft landing is almost out of the question,” Seema Shah, chief global strategist at Principal Global Investors, wrote in a note following the Fed decision. “(Mr) Powell’s admission that there will be below-trend growth for a period should be translated as central bank speak for recession. Times are going to get tougher from here.”
Traders are also preparing for the Bank of England to announce its seventh consecutive rate increase later today, following a jumbo sized hikes from the central banks in Switzerland and Norway.
US yields appear to be appealing and investors believe other economies to be too fragile to support rates as high as those being considered in the US, which is helping push the dollar higher.
Russia’s intensification of its conflict with Ukraine and tensions between Beijing and Taiwan further hurt sentiment.