Indices snap 5-day winning streak, drop 1.2% ahead of Fed announcement

The benchmark indices snapped their five-day winning streak on Tuesday as investors shifted focus to the US Federal Reserve’s policy announcement. Rising retail inflation in India and a drop in Asian and European equities also weighed on sentiment.

The benchmark Sensex ended the session at 55,777, a decline of 709 points or 1.3 per cent, and the Nifty ended the session at 16,663, a drop of 208 points or 1.2 per cent. In the previous five trading sessions, both indices had jumped more than 6 per cent, rebounding from seven-month lows.

India’s retail inflation rose to 6.07 per cent in February. This is the second consecutive month when it has breached the Reserve Bank of India’s (RBI’s) inflation target of 4 per cent plus or minus 2 per cent. Similarly, wholesale inflation was at 13.1 per cent, making it the 11th straight month of double-digit rise. Investors believe that these developments add more pressure on the RBI to hike rates.

Analysts said investors will keenly watch the outcome of the meeting of the Federal Open Market Committee (FOMC). The US central bank is expected to hike rates by 25 basis points (bps). More than the rate hike, analysts said investors will lookout for the comments of US Federal Reserve Chairman Jerome Powell on inflation, economic outlook, and the prevailing macroeconomic situation.

Asian markets were mainly in the red with the sell-off in China, aggravating concerns that Beijing’s ties with Russia could spark new US sanctions. The geopolitical concerns are adding to concerns over regulatory developments, including a possible delisting of Chinese firms from US exchanges.

Meanwhile, the price of crude oil continued to retreat. The resurgence of virus cases in China, the world’s biggest crude importer, and hopes of progress in ceasefire talks between Ukraine and Russia led to the fall. The Oil and Gas index fell 2.6 per cent with ONGC declining close to 5 per cent.

The market breadth was weak, with 2,120 stocks declining against 1,270 that advanced.

“Local investors too seem to have panicked as the war [doesn’t] seem to be ending and the US Fed meeting’s outcome is just a day away. This is despite the fact that crude oil prices have dipped after rising towards $138 per barrel barely a week back,” said Deepak Jasani, head of retail research, HDFC Securities.

Going forward, analysts said the volatility in financial markets should continue till there is a resolution to the Russia-Ukraine crisis.

“The trend in global equities, the movement of the rupee against the dollar and crude oil prices could dictate the near-term trends. The Indian economy is in good shape given the underlying stellar corporate earnings momentum, the cleansed balance sheets, improving asset quality of the banks, levers in place for Capex cycle revival and credit off-take. This coupled with increasing DII participation can revive the markets gradually once prevailing clouds of uncertainty disappear,” said Mitul Shah, head of research, Reliance Securities.

Two-thirds of Sensex stocks declined. Tata Steel fell 4.9 per cent and was the worst-performing Sensex stock. Metal stocks fell the most, and their sectoral index declined 4.3 per cent.