Rate hike fears on high inflation buffet markets

The BSE Sensex slipped below the 60,000-mark, and the National Stock Exchange’s Nifty ended at 17,554, its lowest level since October 20, as investors grappled with recent economic data from the US and Europe. Experts said the slow deflation rate indicated by recent economic data suggests that the Fed may continue to raise rates for longer than previously expected.

Srikant Chauhan, head of equity research (retail) at Kotak Securities Ltd, said the overnight fall in US markets spooked Indian markets as heavy selling across the board saw the Sensex fall by nearly 1,000 points.

He said markets were already range-bound with a downside bias in the past few sessions, and today’s sharp fall could further fuel concerns of rising interest rates, high inflation and slowing global growth.

Closing below 17,604, the Nifty has made a new low on the daily line chart, indicating continuation of a bearish trend, said Devarsh Vakil, deputy head of retail research at HDFC Securities.

A prolonged accommodative stance by the Federal Reserve could potentially prompt the Reserve Bank of India (RBI) to keep interest rates higher. According to Acuité Ratings & Research, the RBI is likely to continue with monetary tightening due to high levels of core inflation. As a result, there could be another 25-basis-point hike in April 2023, and the RBI may take a data-dependent approach to its stance.

All the sectoral indices closed with heavy losses. Nifty Metal, Media, PSU Bank, Energy, Infrastructure and Commodities were the biggest losers. Shares of Adani Group continued to decline as Adani Enterprises Ltd plunged over 10%. Rest nine Adani group stocks declined 4-6.25%. The group has seen its market cap fall by more than 60% since January 24, when US short-seller Hindenburg Research released a report alleging corporate malpractice against the group. The Adani Group has denied any wrongdoing.

Meanwhile, statements by the Russian and US presidents escalated geopolitical tensions and brought uncertainty to equity markets, said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services Ltd.

Vinod Nair, head of research at Geojit Financial Services, said resurgence of the Cold War between the US and Russia has created apprehension in the market. However, this should be a short-term effect, Nair said, given the fear of sanctions against Russia and the degree of its impact on the economy, particularly food and oil exports, is a growing concern.

Meanwhile, the Volatility Index (India VIX) rose 11% to 15.6. The Nifty has now fallen almost 3% in the last five days. “We expect the market to remain weak for the next few days amid expiry of monthly derivatives and increase in global volatility,” Khemka said.

The rupee depreciated by nearly five paise to 82.85 against the US dollar due to weakness in equity markets. But the response was muted because of suspected interference from the central bank, said Anindya Banerjee, vice-president of currency derivatives and interest rate derivatives at Kotak Securities Ltd. spot market.