Markets decline over Fed officials' hawkish remarks; Sensex down 316 pts

The benchmark indices declined on Friday following hawkish statements by Federal Reserve and European Central Bank officials who brought back fears of even higher interest rates. Still, indices ended the week in the green; this was the third consecutive weekly gain despite heightened volatility amid the rout in Adani group stocks.

The Sensex ended the session at 61,002, following a decline of 317 points or 0.5 per cent. The Nifty50, on the other hand, ended the session at 17,944, down 91 points or 0.5 per cent.

Earlier this week, President of the Federal Reserve Bank of Cleveland Loretta Mester said she had seen a “compelling economic case” for rolling out another 50 basis point hike. St. Louis’ Fed President James Bullard said he cannot rule out supporting a half-percentage-point increase at the March meeting. ECB Executive Board member Isabel Schnabel, too, warned that the markets risked underestimating inflation.

Data released on Thursday showed US producer prices rebounded in January, underscoring persistent inflationary pressures. The producer price index for final demand jumped 0.7 per cent last month, the most since June and was bolstered by higher energy costs. The PPI, which is a measure of wholesale prices, has generally been cooling down in recent months. The US consumer price index data, which came out last week, rose 0.5 per cent in January, the most in three months.

Analysts said the latest economic data is driving the message that ensuring a soft-landing for the economy would be an extraordinary challenge and there’ll likely be plenty of turbulence along the way. Going forward, the strength of the labour market as well as global commodities prices will be key for the overall inflation picture.

Some analysts are also speculating a hard landing for the US economy in the second half of 2023.

“ Dominated by the release of key macroeconomic numbers and persistent FII buying, domestic markets witnessed a positive trend during the week. However, the unfavourable combination of higher-than-expected inflation and a stronger job market in the US market dragged markets lower towards the end of the week, raising concerns about tighter monetary policy,” said Vinod Nair, head of research, Geojit Financial Services.

The market breadth was weak on Friday with 2,053 stocks declining and 1,401 advancing. Foreign Portfolio Investors (FPIs) were net sellers to eh tune of Rs 624 crore. Going forward analysts said global cues dictate the market's trend going forward as there are no major domestic triggers.

"Even the corporate earnings growth for 3QFY23 moderated led by weak demand environment and inflation led margin pressure. The slowdown in Consumption if persist can pose a big concern. Currently, markets are trading range bound and valuations are fair with Nifty trading at Rs 18x FY24E EPS. Thus there is room for modest upside but only if corporate earnings do not see material downgrades ahead," said Siddhartha Khemka, head - of retail research, at Motilal Oswal Financial Services.