The US Fed rate hike leads to volatility in markets as indices decline 0.6%

Foreign portfolio investors also turned sellers, dumping a provisional ₹3,979.44 crore in the markets. The Sensex and the Nifty, which opened on a positive note, gave away most of their gains and ended in the red. The Sensex ended the day at 66,266.82, down 0.66%, while Nifty closed at 19,659.90, down 0.6%.

Srikant Chouhan, head of research (retail) at Kotak Securities Ltd, said that the markets witnessed wild gyration on the expiry day as the US Fed signalling one more rate hike dampened the sentiment and prompted investors to book profits in automobile, banking, and oil and gas shares.

The US Federal Reserve’s rate, though, was on expected lines. Nevertheless, analysts said it is the Fed’s statements that have left the door open for an additional hike, which is adding to concerns amongst market participants.

Fed Chair Jerome Powell indicated in his speech that the Fed would carefully assess the jobs’ reports and the CPI prints that would come in by the September meeting. Based on these data, it is possible the Fed could hike and it is also possible the Fed could hold in the September policy. The Fed also noted that its rate-setting committee remains “highly attentive to inflation risks”.

Auto stocks led the decline in the indices, while banks, financials, oil and gas, and FMCG index also stood among major losers. Investors preferred to turn to the safe haven, the pharma index, which was among the top gainers. The pharma sector saw huge buying interest on the back of good results announced by Cipla and Dr Reddy’s, along with a couple of USFDA approvals given to Aurobindo Pharma, said analysts. The real estate sector also saw a run-up on the back of strong demand growth seen in the luxury housing segment.

While Cipla, Sun pharma and Divi’s Laboratories were among the biggest gainers, Tech Mahindra, and Mahindra and Mahindra were among the biggest Nifty losers. Midcaps and small caps, however, outperformed and the Nifty Midcap 100 index gained 0.27%.

Meanwhile, the valuation of the markets after a significant run up was also sighted as a reason for Thursday’s corrections.

“Many investors are not comfortable with the current valuations, and hence are redeeming their investment on every possible opportunity, ” said Chouhan.

He added that technically, on daily charts the Nifty has formed a lower top and bearish candle, which is indicating further correction from the current level.

Cautiousness was seen in the market ahead of the European Central Bank and Bank of Japan’s interest rate decisions, said analysts. The market is likely to consolidate given no clarity by the US Fed on its future course of action, leading to mixed global cues, said Siddhartha Khemka, head of retail research, Motilal Oswal Financial Services Ltd. Overall, strength continues in the market, with the likelihood of consolidation at higher levels, he added.

On Nifty’s daily charts, Jatin Gedia, technical research analyst at Sharekhan, said that he can observe that the daily as well as hourly momentum indicator has a negative crossover, which is a sell signal.

Thus, both price and momentum indicators suggest that there could be some weakness in the short term. However, the daily Bollinger bands are also contracting, which points towards consolidation in the short term and, thus, Gedia has changed his short-term stance from positive to sideways, and the range of consolidation is likely to be 19,900 – 19,500.

Updated: 27 Jul 2023, 08:20 PM IST