Sensex slumps 1,500 points in two days; here’s what has spooked investors

Over the last two days, domestic equity have sharply treaded lower as renewed fears of stringent rate hikes took over Dalal Street.

After a sharp runup of around 17 per cent from June lows, have succumbed to profit booking as investors around the world become cautious. Since Friday, the BSE Sensex, and the NSE indices have shed 1,524 points and 465 points, respectively.

“Consolidation was triggered in the market in anticipation of tighter monetary policy by the Fed and worries over a slowdown in global economic activity. The current risk reward is not favouring investors. Rising dollar index and higher US10 year bond yield act as the near-term headwinds for the market”, said Vinod Nair, Head of Research at Geojit Financial Services.

Here are some factors that have swayed the market mood:

FOMC minutes: The minutes of the US Fed’s latest meeting revealed last week that the central bank believes inflation is too high despite aggressive rate hikes, and that there was little evidence to support that inflationary pressures were subsiding. This has raised bets that the Fed will continue with its rigid tightening at least for some time.

Moreover, several Fed officials lent support to potential more big rate increases on Thursday, as per reports. For instance, St. Louis Fed President James Bullard and San Francisco Fed President Mary Daly have batted for raising interest rates by 50-75 basis points in September. Hence, market confidence has taken a blow as investors await Fed Chair Jerome Powell’s address at the Jackson Hole symposium on Friday.

Slowdown fears: As a result of the hawkish Fed, risk aversion has set among investors. US snapped their 4-week rally on Friday with the frontline indices tanking up to 2 per cent.

Besides, a slowdown in neighbouring country China has also soured sentiment. The country’s GDP in Q2 came in at just 0.4 per cent on-year, its slowest rate since the Covid crisis began in 2020. Subsequently, the country’s central bank on Monday cut benchmark loan rates in an attempt to boost the economy.

Rupee slump: The US dollar has also been gaining strength recently amid rising expectations of higher rate hikes. The dollar index hit a fresh five-week high of 108.26 on Monday as investors turned apprehensive. Rupee also pulled back to 79.86/$ levels. Similarly, the 10-year US treasury yield touched the 3 per cent mark for the first time in a month.

F&O expiry on Thursday: Equity markets were also pressured on Monday as the monthly F&O expiry draws near. After a sharp run up the markets since July and the corporate earnings season now getting over back home, investors will look to global cues as they roll over their July positions to the next series.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Source link

Comments are closed.