FPI selling and decline in heavyweights pull Sensex 637 points down

A combination of foreign portfolio investor (FPI) selling amidst nervousness ahead of the release of Fed minutes and a decline in index majors led to the decline in Indian equity benchmark indices on Wednesday. Reports of the rising death toll in China after the easing of COVID curbs added to nervousness. The Sensex fell 637 points to end the session at 60,657 a decline of 1.04 per cent and the Nifty fell 189 points to end the session at 18,043 a decline of 1.04 per cent. The decline in markets wiped out investor wealth worth Rs 2.09 trillion on BSE. The indices snapped their gaining streak this week with Wednesday's fall.

FPIs sold shares worth Rs 2,621 crore on Wednesday, according to provisional data from exchanges ahead of the release of the minutes of the US Federal Reserve's Federal Open Market Committee meeting in December.

The Fed minutes are likely to give more cues on why the US central bank thinks the inflation might persist this year. After its December meeting, the US central bankers stated that the inflation might be higher in 2023 than they anticipated. And that led to support for raising interest rates above 5 per cent.

The US inflation is expected to end at 3.1 per cent in 2023 against 2.8 per cent in the previous projections.

A section of the market is expecting the US Fed to hike rates up to 5.5 per cent and keep the rates at that level till inflation cools down to their expectations. The Federal Open Market Committee raised its benchmark rate by 50 basis points in December to 4.25 to 4.5 per cent. And the Fed chief had stated that the US central bank is not considering rate cuts until it is confident that inflation is moving down to 2 per cent in a sustained way. 

The US central bank's views on inflation are at loggerheads with that of markets which are more optimistic about inflation after price pressures moderated. 

" The domestic market affected by the worries in the global market, traded with deep cuts. Fears over aggressive rate hikes resurfaced ahead of the release of Fed meeting minutes, a meeting that left the door open for additional hikes. Apart from global cues, the domestic market will pay close attention to corporate earnings. India’s services PMI expanded to 58.5 in December owing to stronger growth in new business,' said Vinod Nair, head of research at Geojit Financial Services.

Brent crude was trading at $79 per barrel after declining 3 per cent.

"This decline has engulfed the gains of the last four sessions in Nifty, and selling pressure in the banking index, which was acting as a saviour so far, has further deteriorated the mood. And, we feel the pressure may increase below 18000 levels in Nifty. Keeping in mind the scenario, it is prudent to limit leveraged positions and wait for clarity,' Ajit Mishra, VP - Technical Research, Religare Broking 

The market breadth was weak, with 2,351 stocks declining and 1,136 advancing. Barring three, all the Sensex constituents declined. Reliance Industries declined 1.5 per cent and contributed the most to index gains.

HDFC Bank declined 1.8 per cent.