The Indian markets posted their biggest single-day fall in three months, as the selloff in global markets extended amid a surge in the US dollar, which triggered bets of an outsized rate hike by the US Federal Reserve. A bunch of weak economic data, both global and local, continued to cloud the outlook.
The Sensex fell 1,093 points or 1.8 per cent to finish at 58,841, while the Nifty ended at 17,531, with a decline of 346 points or 1.9 per cent—most since June 16. Both indices fell about 1.7 per cent during the week, the most since the week ended June 19.
Experts said hopes that the Fed will go softer on rate hikes have been dashed by the latest inflation figures. The stronger-than-expected US employment data further strengthened the case for aggressive monetary tightening.
Most investors are now pricing in a 75 basis-point hike by the Fed next week, with some even fearing a 100 bps hike. The Fed has already hiked rates by 75 bps twice.
Foreign portfolio investors (FPIs) sold shares worth Rs 3,260 crore on Friday, extending this week’s selloff. In the previous two trading sessions, they had sold equities worth Rs 2,053 crore.
“The Fed’s inflation target is 2 per cent. And you need to hike continuously to reach there. The downturn has to be significant for Fed to change its mind,” said Andrew Holland, CEO, Avendus Capital Alternate Strategies
The outlook by FedEx was an extra nail in the coffin, he added. The delivery giant has withdrawn its earnings forecast, flagging weakness in Asia and Europe and fearing further deterioration in business conditions.
The slashing of India’s economic growth forecast by global rating agency Fitch added to investors’ woes. Fitch cut India’s GDP forecast to 7 per cent in the current fiscal, against an earlier projection of 7.8 per cent. Further, it projected the growth to slow down to 6.7 per cent in FY24, from a previous estimate of 7.4 per cent.
Fears of rate hikes and gloomy economic outlook have prompted to investors to seek refuge in the dollar and other safe assets. The greenback rose 0.7 per cent against the rupee in the last three sessions.
“Investors are widely expecting an aggressive rate hike next week, with a thirs of market respondents expecting the Fed to do 100 bps, whereas a 75 bps hike is mostly discounted. To combat pressure on the rupee, the RBI most likely will have to do at least 50 bps rate hikes soon,” said Aishvarya Dadheech, Fund Manager, Ambit Asset Management.
The rout in tech stocks exacerbated, with the Nifty IT dropping 3.7 per cent on Friday, extending its year-to-date loss to 31 per cent. The Nifty IT index shed 7 per cent this week amid a decline in global technology shares and a recent downgrade by Goldman Sachs.
Banking stocks managed to outperform this week. The Bank Nifty index hit a lifetime high on Wednesday and finished the week with a one per cent gain.
“Among the sectoral pack, banking is still looking comparatively stronger, so participants can continue with buy-on-dips in private banking names,” said Ajit Mishra, VP of research, Religare Broking.
The market breadth was weak with 972 stocks advancing and 2,532 declining.
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