Fed Chairman Jerome Powell’s comments about keeping interest rates high prompted investors who hoped the economic slowdown would soon prompt a moratorium on accommodative policies and rate hikes. India’s benchmark index fell along with its global peers on Monday as it rocked the house.
Sensex closed down 861 points (1.46%) at 57,972. The 30-stock index hit its highest since June 16, even though he fell 1,466 points (2.5%) in intraday trading. Meanwhile, Nifty dropped 246 points, or 1.40%, to settle him at 17,313.
The decline seen in the Indian market was less severe than Friday’s sell-off on Wall Street, where key indicators fell more than 3%. Major US indices were also trading in the red on Monday. The Dow Jones Industrial Average and S&P 500 he fell about 0.8% and 0.7% at 20:10 IST.
In a speech at the Jackson Hole Symposium on Friday, Powell said restoring price stability will take time and will require strong use of monetary policy tools. He added that the economic woes could be an inevitable consequence of keeping inflation under control.Powell cautioned against easing monetary policy prematurely, and the past record suggests that He said he issued a strong warning against such moves.
Powell’s remarks disappointed investors who were hoping for a rate cut next year amid slowing growth. Investors worry that higher interest rates could further reduce corporate earnings, increase defaults and increase volatility.
His comments sparked risk-off bets in global markets, with stocks and bitcoin dropping, US Treasuries and the dollar rising. A foreign portfolio investor (FPI) withdrew his Rs 560 crore from domestic stocks on Monday. The rupee plummeted and during the day he broke through the 80 mark against the US dollar to a new all-time low. Rupee depreciation could negatively affect FPI flows as currency depreciation weighs on his FPI profits. FPI flows helped Indian stocks surge from his June lows.
“Before Jackson Hole, markets were still optimistic that the Fed would become less hawkish. But Powell’s speech said they plan to keep rates higher to fight inflation. And when he talks about pain, that really means there are no more soft landings. said Andrew Holland, CEO of Avendus Capital Alternate Strategies.
The Indian market this year shows a high correlation with the US market. Experts say the fall in U.S. stocks could also be reflected in the domestic market.
In a report, Kotak Institutional Equities said, “Despite market expectations of a shallow and short slowdown, the Federal Reserve (Fed) decided to slow down the U.S. economy further to keep inflation under control. “It clearly shows that it might be willing to provoke deeper and longer.”
Rising Brent oil prices further weighed on investor sentiment. Brent on Monday was trading at about $102 a barrel, compared to $96 a barrel a week earlier. India is a net importer of oil and rising oil prices can lead to inflation.
“Selling in emerging markets such as India has been exacerbated by concerns over the potential withdrawal of foreign capital that has been the backbone of the recent market rally,” said Vinod Nair, head of research at Geogit Financial Services.
The MSCI Asia-Pacific index has approached its lowest level in almost two years after falling more than 2% on Monday.Equity markets around the world are facing heat this year as interest rates rise and China slows. However, India has outperformed major global markets. Analysts said volatility is likely to persist until inflation stabilizes or China’s economy recovers.
The market range was weak, with 2,106 shares falling and 1,403 shares rising on the BSE. Only 6 of Sensex’s 30 components turned a profit. Tech Mahindra dropped 4.6% of him, while Infosys and Wipro dropped 4% and 3% respectively.