Stocks snap rally as Fed turns hawkish
The US Federal Reserve hinted at a faster-than-expected rise in interest rates
MUMBAI: Indian shares snapped a four-day rally on Thursday, joining other equity markets in the Asia-pacific in a sell-off on weak global cues, after the minutes of a meeting of the US Federal Reserve hinted at a faster-than-expected rise in interest rates because of concerns over persistent inflation. Growing concerns over rising covid cases in India, leading to partial restrictions on mobility, has also weighed on investor sentiment.
The BSE Sensex fell 621.31 points, or 1.03%, ending at 59,601.84. The Nifty slipped 179.35 points, or 1 %, to 17,745.90.
Both Asian and European markets fell after Wall Street’s tech-heavy Nasdaq plunged more than 3% on Wednesday and 2- and 5-year treasury yields, key drivers of the global borrowing costs, surged to postpandemic highs. Japan’s Nikkei declined 2.88%, while South Korea’s Kospi fell 1.13%.
Minutes from the Fed’s December meeting showed that a tight jobs market and unrelenting high inflation may prompt the US central bank to raise rates sooner and start reducing its overall asset holding, a process known as quantitative tightening (QT).
The minutes of the meeting showed that Fed officials were concerned about the persisting pace of inflation, alongside global supply bottlenecks “well into” 2022.
“Global markets were wounded by heavy selling as Fed meeting minutes pointed to faster-than-expected policy rate hike considering elevated US inflation levels. Investors are also watching the fast spread of covid cases and stricter restrictions being imposed as it would keep the market highly volatile in the coming days,” said Vishal Wagh, research head, Bonanza Portfolio Ltd.
As India braces for a third wave of Covid-19 infections, Radhika Rao, senior economist, DBS Group, said an unfavourable global environment, coupled with caution over a heavy fiscal borrowing pipeline, liquidity withdrawal, rise in oil prices and lack of direct support from the central bank, has driven 10-year rupee yield to a near 20-month high, past 6.5%.
“The Reserve Bank of India policy commentary in December pointed to the preference for a gradual road towards policy normalization. Guidance reinforced that the Monetary Policy Committee’s (MPC’S) priority is to secure growth impulses and preserve policy room to meet this objective, diverging from the global policy shifts, particularly of the US Fed. Even as inflation risks were highlighted on imported pressures and volatility in food, ‘flexibility’ in the price stability mandate will see the recovery path dictate policy direction,” Rao said.
Analysts at Reliance Securities are optimistic that an allround calibrated economic recovery is on the cards, though the timing remains highly uncertain.
(With inputs from Reuters)