Markets decline on hawkish Fed signals; Sensex slips 632 points

FPIs sell shares worth Rs 2,109 crore

India’s benchmark indices declined on Tuesday, along with most of their global peers, as investors assessed the hawkish comments from US Federal Reserve officials.

The Sensex plunged as much as 809 points during the day but partially recovered in the last 30 minutes of trading to settle at 60,115, with a decline of 632 points, or 1.04 per cent. The Nifty50, on the other hand, dropped 187 points, or 1.03 per cent, to end the session at 17,914.

Foreign portfolio investors net sold Indian equities worth Rs 2,109 crore, while domestic institutional investors lent support to the market and bought shares worth Rs 1,806 crore, according to provisional data from the exchanges.

Atlanta Fed President Raphael Bostic on Monday said the US central bank was determined to tackle high inflation, and that it should raise interest rates above 5 per cent by the second quarter and then go on hold for “a long time.” Bostic added that if the upcoming data showed cooling consumer prices, then the case for reducing rate hikes to 25 basis points would be stronger.

San Francisco Fed President Mary Daly, meanwhile, said she expected the central bank to raise interest rates to above 5 per cent. It was too early to declare victory over inflation, Daly said. Neither Bostic nor Daly has a vote on policy this year. As a result, investors awaited remarks from Fed Chairman Jerome Powell for clues on the trajectory of interest rates.

The US non-farm payroll data was better than expected in December, and the unemployment rate fell by 0.1 percentage point to 3.5 per cent. However, the average hourly earnings rose 0.3 per cent compared to last month. The softening wage growth has made a section of the markets hopeful of the Fed going a bit easy on rate hikes. The US central bank sees wage pressures as an impediment to achieving its target of bringing down inflation to 2 per cent.

“Volatility will last till there is some indication that interest rates have peaked and will be stable for some time before they start softening. As of the last FOMC meeting, markets were speculating a peak rate of 4.8 to 5 per cent. Now there is an indication that it will go above 5 per cent and that is spooking the market,” said U R Bhat, co-founder, Alphaniti Fintech.

The market breadth was weak with 2,189 stocks declining and 1,329 advancing. More than two-thirds of the Sensex stocks declined. Reliance Industries contributed the most to the index’s decline, falling 1.5 per cent. HDFC Bank (down 1.7 per cent) and ICICI Bank (down 1.5 per cent) were the other big contributors to the index’s fall.

“Domestic equities have been witnessing wild swings in the last few days as a series of events have kept investors on the edge. Some volatility was also due to the cautious environment globally ahead of US Fed Chair Powell’s speech. We expect the Nifty to move in a broader range ahead of various events like the US Fed speech, and the release of US, India and Europe CPI data. However, expectations of healthy earnings could cap the downside,” said Siddhartha Khemka, head-retail research at Motilal Oswal Financial Services.