Markets snap 6-day winning streak over Fed anxiety; Sensex falls 306 pts

The equity markets snapped their longest winning streak since October amid a decline in some index heavyweights, including Reliance Industries, and concerns about the Federal Reserve's monetary policy outcome, which is due on Wednesday.

The Sensex declined 306 points, or 0.5 per cent, and ended Monday’s session at 55,766. The Nifty50 ended the session at 16,631, following a decline of 88 points, or 0.5 per cent.

The outcome of the US Federal Reserve's monetary policy meeting is keeping investors on tenterhooks. Some investors are speculating that the US central bank may prescribe a bitter bill to tame inflation, and that it may take a recession and joblessness to ease price pressure.

The Fed's repeated hikes have already led to a hiring freeze and softening of the housing market in the US. The European Central Bank (ECB) has also indicated that it is not done yet following a 50-basis point hike last week. The ECB's governing council member Martins Kazaks told media houses that the rate increase in September needs to be quite significant.

More than the Fed's hike, it is the commentary that would impact market sentiment.

"The markets anyway expect a 75-basis point expect. A 100-basis point would be seen initially as more aggressive. Then it would be the commentary that investors would be looking for more cues. If the Fed says it is going to do a 100-bp hike now and a 50-bp hike later, it is the same thing as two 75-bp hikes,” said Andrew Holland, CEO, Avendus Capital Alternate Strategies.

On Monday, investors were looking for signs that the recent spate of positive foreign flows would sustain. But foreign portfolio investors (FPIs) sold shares worth Rs 845 crore; domestic investors were net sellers to the tune of Rs 72 crore. Besides the Fed hike, investors will be tracking corporate results to assess whether the recent rebound in equities is here to stay.

"Some of the results of big companies, though they look good, did not meet expectations. We still don't have any good news on the inflation front from the US. Unless that happens, one cannot expect the Fed to moderate hikes,” said UR Bhat, founder, Alphaniti Fintech.

The earnings report of Reliance Industries, which has the highest weighting in the Sensex and the Nifty, missed Street estimates. Its stock fell 3.3 per cent and contributed most to the Sensex's decline after a weaker-than-expected earnings report.

ICICI Securities in a note said prospects have turned cloudy because of a sudden downturn in Asian gross refining margins (GRMs), muted petrochemical spreads, and the overhang of the recently imposed additional export duties.

"Besides, we remain sceptical of meaningful expansion in return ratios and/or any major move to return cash to shareholders in view of the sustained capex momentum,” the note stated.

Analysts said the markets will remain volatile unless investors are convinced that the worst of economic distress is past or the Fed takes a more dovish stance.

Though earnings both locally and globally haven't been too bad, they have not been positive enough to move the markets. And investors are wary of trusting earnings or the outlook.

The market breadth was weak with 1,952 stocks declining and 1,472 advancing on the BSE. More than half the Sensex's constituents declined.

The share of Zomato fell 11.4 per cent as its investor lock-in expired. Auto stocks declined the most, and its sectoral index fell 1.7 per cent. Foreign portfolio investors were net sellers worth Rs 844 crore, according to provisional data from exchanges.