Markets extend fall after hawkish pause by US Fed

livemint.com:

MUMBAI : Indian stocks extended their decline to a third straight day, dropping nearly 1% following the US Federal Reserve’s hawkish stance on interest rates. The expectation of prolonged elevated rates in the US has deepened concerns about a global slowdown, making equity markets jittery worldwide. The National Stock Exchange’s benchmark Nifty index, which has lost 1.45% in the past two sessions, ended 0.8% lower at 19,742.35 on Thursday.

The Sensex, too, ended 0.85% lower at 66,230.24. The US Fed kept interest rates unchanged at the 5.25-5.5% target range, as anticipated. However, the majority of Fed officials favoured at least one more rate hike this year, signalling a likelihood of interest rates remaining higher for longer.

Apart from slowdown concerns, the resultant rise in the dollar index and bond yields is not favourable for foreign fund flows into emerging markets such as India. It makes equity investments in emerging markets less attractive as an asset class for foreign portfolio investors (FPIs). FPIs were net sellers worth ₹3,007.36 crore in the Indian markets, according to provisional figures.

Domestic institutions supported markets, with net buying worth ₹1,158.14 crore. “Dark clouds are gathering on the horizon amid lengthening odds of a rate cut in the US, FPI turning sellers of Indian shares this month, brewing India-Canada tensions, the rainfall deficit raising the likely sceptre of high food inflation and with elections around the corner, “said Nilesh Shah, managing director of Kotak AMC. “We could see a combination of time and price correction in the large and midcaps and a price correction in small, micro- and mini-caps in the near term," Shah added.