Indian markets closed sharply lower on Friday amid weak global cues as fears of an economic slowdown continued to mount on aggressive rate hikes by central banks across the globe.
Sensex and nifty Siddharth Khemka, head of retail research at Motilal Oswal Financial Services Ltd., tracking global peers, closed 1.56% and 1.63% lower due to concerns over economic growth due to rising inflation. Besides, higher bond yields, as well as issuances, added pressure from selling by foreign institutional investors, Khemka said.
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“The only significant factor affecting global equity markets is the re-emergence of inflation as a major threat and skepticism On the ability of central banks to control inflation without a sharp economic slowdown, said VK Vijayakumar, chief investment strategist at Geojit Financial Services.
Asian indices such as Taiwan, Shanghai Composite and Hang Seng ended 1.72-3.81% lower. Only the Jakarta Composite and the Nikkei could manage some gains of 0.45% -0.69%.
after the rate hike reserve Bank of India And scathing remarks by the US Fed, Bank of England and negative economic growth outlook shook global markets. Khemka said global markets fell 2-3 per cent after interest rates were hiked to check rising inflation, impacting economic growth. The Bank of England on Thursday raised interest rates to their highest 1% since 2009.
Investors are concerned that a hike in interest rates could negatively impact emerging markets.
“A faster Fed and rising global inflation narrative will force central banks to keep up with the normalization of monetary policies. As a result, a higher cost of capital will weaken earnings momentum somewhat in EM economies such as India, where high The impact of input cost and rising interest rates will be more pronounced in Q2 FY23,” said Niyati Khandelwal, Head – Sales & Trading – Institutional Equities, Yes Securities.
Vineet Bolinjkar, Head of Research, Ventura Securities Ltd, said selling by FIIs is expected to pick up as bond yields in the US start giving better returns on higher credit ratings, which will ultimately weaken the Indian financial market.
FIIs remain net sellers even after selling 1.34 trillion worth of equity in 2022 as of May 5. A weak rupee is also not a good sign for their returns.
Bond yields also rose further from 7.40% on Thursday. Edelweiss Asset Management had said that bond market participants expect the RBI to raise the repo rate to 5.15% over the pre-pandemic level, and aim to complete the policy rate normalization process. It said the repo rate would reach there by December.
Rising crude oil prices are adding to inflation concerns as Brent rose to $114 a barrel on Friday. Notably, Brent had softened to the level of $ 101 per barrel in the last week of April. Experts said continued concerns over tight global supply are driving oil prices higher.
Amol Athawale, Deputy Vice President-Technical Research, Kotak Securities Limited, said that fears of a rise in crude oil prices intensified selling in the market on Friday.
“Additionally, a stringent lockdown in China has severely affected global supply chains and remains a major concern for markets. Deepak Jasani, head of retail research at HDFC Securities, said, “Asian stocks fell on concerns about China’s zero-Covid policy affecting growth. US dollar hit 20-year high and world stocks in over a year fell to its lowest point.” He said that on Friday, the markets are expected to increase the US interest rates further.