Why are Stock Markets Falling Today? Key Indian benchmark indices traded lower for the third consecutive session on September 16 led by a fall in global equities amid expectations of strong a rate hike by the US Federal Reserve. Frontline indices Nifty50 slipped 290 points to trade near 17,550 levels and the S&P BSE Sensex tumbled over 1,100 points.
Against this backdrop, analysts say that the domestic market has started showing some indications of fatigue. Globally, the major concern now is that the Fed might oversteer the economy and end up raising rates too much too fast, pushing the US economy into a sharp recession.
“There are talks of the terminal Fed rate rising to 4.25 per cent. Sharply rising rates, rising bond yields, and a rising dollar are negatives for equities. In this challenging environment, it would be difficult for India to sustain the decoupling from the global trend, which has been a recent pattern. Moreover, FIIs have halted their sustained buying and have turned into sellers, though this is not yet a trend. Investors should adopt a wait and watch attitude till the Fed meeting is over on September 21,” said V K Vijayakumar, chief investment strategist at Geojit Financial Services.
Global Cues
Weakness in the global markets pushed the Indian benchmark indices lower. Asian peers including Nikkei, Kospi and Hang Seng were trading with big cuts, following a weak trading session in the US stocks overnight.
Deepak Jasani, Head of Retail Research, HDFC Securities, said: “Asian stocks headed for a fifth week of declines following more weakness in US equities and as investors braced for a US rate hike next week amid growing concerns of a global recession following warnings from the World Bank and the International Monetary Fund.”
IT Stocks Sink
India’s top five most valued information technology firms lost a combined Rs 1.60 trillion market value in the last four sessions amid a selloff in global equities after hotter-than-expected US inflation triggered risk-off bets. Infosys lost around Rs 54,000 crore mcap in the last four sessions, and TCS erased around Rs 76,000 crore mcap. HCL Tech, Tech Mahindra, and Wipro lost Rs 14,000 crore, Rs 10,000 crore and Rs 8,000 crore respectively. IT stocks have been reeling under pressure since the beginning of the year and the recent downgrade by Goldman Sach also dampened sentiments of the investors. Analysts expect that further correction in the IT stocks is not ruled out. Analysts also assume the IT sector’s revenue will be hit by a likely slowdown in US demand. So far this year, the Nifty IT index lost 30 per cent.
Rate Hike Fears
Traders are anticipating another rate hike, third consecutive, from the US central bank. The US Federal Reserve is likely to meet next week and may further increase interest rates to tame the rising pressure. However, some analysts believe that a one percentage point rate hike could also be on the cards.
Inflation
India CPI inflation surprised on the upside in August at 7.0 per cent year on year from 6.7 per cent in July Analysts now expect the RBI to hike rates by 50 basis points in its next MPC (30 September) taking the repo rate to 5.90 per cent. “If inflation remains sticky, we believe the RBI can continue hiking in December, although we now expect no action in December, as things stand”, analysts added.
Nifty Technical Outlook
The Nifty50 failed to hold on to 18,000 levels on Thursday and closed with a bearish candle on the daily charts. Even though the index failed to hold on to 18,000, it still managed to close above the crucial support above 17,800, a positive sign for the bulls.
The downside bias that was expected to prevail yesterday, managed to drag Nifty only as far as 17,860 vicinity, said Anand James – Chief Market Strategist at Geojit Financial Services
“The full extent of the bearish move could be revealed today,” he added. While we expect dips to 17,700 to attract bargain buying, the inability to clear 17,860 on the bounce could signal extended downsides, with the first objective at 17,460.
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