Indian Equities Slump After Fed Rate Hike

Indian benchmark indices ended lower for the second consecutive session on Thursday as investors factored in the US Federal Reserve’s 75 bps rate hike. With this hike, the Fed funds rate has moved up to 3-3.5 per cent, the highest since January 2008. While the hike was on expected lines, it was the Fed’s projection for the rest of the year which shook investor sentiment.

The median forecast showed that central bank officials expect to hike rates to 4.4 per cent by the end of 2022. With only two policy meetings left in the calendar year, chances are the central bank could conduct another 75-basis-point rate hike before the year-end.

The rate hike also led to the US Dollar Index to surge leading the Indian rupee to end at record low of 80.95.

At close, the Sensex was down 337.06 points or 0.57 per cent at 59,119.72, while its broader peer, the Nifty was down 88.50 points or 0.50 per cent at 17,629.80.

“Indian markets reacted mainly to the US Federal Reserve's hawkish undertone on interest rate that fuelled pessimism amongst the investors. As expected, banking stocks bore the brunt that led to extended correction in local benchmarks,” said Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities.

On the Sensex, Titan was the star of the day gaining 2.73 per cent to end at Rs 2,737 apiece on the BSE. Hindustan Unilever (2.64 per cent), Asian Paints (2.51 per cent), Maruti Suzuki (1.68 per cent) and ITC (1.19 per cent) were among other top gainers on the 30-share pack.

Power Grid Corporation of India was the top loser on the Sensex, ending 6.35 per cent lower to settle at Rs 220 apiece on the BSE. HDFC Bank (2.18 per cent), Axis Bank (2.09 per cent), HDFC (1.69 per cent) and Bajaj Finserv (1.67 per cent) were other top losers of the day.

Sectorally, the Nifty Bank and Nifty Financial Services each ended 1.4 per cent lower. Except power, FMCG and auto all other sectoral indices ended lower with Bank index shed over a per cent.

“All eyes will be on the RBI Monetary Policy outcome slated to be released in October. We suspect RBI to raise interest rates by another 50 basis points to combat the ever-increasing inflation,” said Prashant Tapse, Research Analyst, Senior VP (Research), Mehta Equities.

Wall Street also slumped after the absorbing Fed’s rate hike. All three benchmarks finished more than 1.7 per cent down, with the Dow posting its lowest close since June 17, with the Nasdaq and S&P 500, respectively, at their lowest point since July 1, and June 30.