Markets dip for a second day ahead of Fed rate hike; Sensex falls 497 pts

Benchmark indices declined for a second day in a row amid weakness in the global markets ahead of the Federal Reserve interest-rate hike.

The Sensex ended the session at 55,268, with a decline of 497 points, or 0.9 per cent. The Nifty, on the other hand, ended the session at 16,484, a fall of 147 points or 0.8 per cent.  

Investor sentiments are jittery ahead of the two-day Fed meeting, which commenced on Tuesday and ends late on Wednesday India time, with some investors speculating that the US central bank may go for a 100-basis point cut to tame record high inflation and a period of recession and joblessness is inevitable. More than the hike, the US central bank’s commentary will be keenly watched by investors.

Last week, the India markets had posted their biggest jump in nearly 17 months, gaining over 4 per cent on the back of positive Foreign portfolio investors (FPIs) flows amid optimism that the US central bank will take a less aggressive approach. However, this week again overseas funds have turned net-sellers. On Tuesday, they sold shares worth Rs 1,548 crore, while domestic institutional investors bought shares worth Rs 999 core.

"Concerns over the global economic slowdown accelerated further as global corporate majors continued their trend of downgrading future estimates. The Fed’s meeting commencing today, which is expected to maintain its aggressive rate hike of 75 bps, weighed on recession fears, especially in western markets. Even though the domestic market is showcasing strength, the spillover effect from the western market is inevitable,” said Vinod Nair, head of research, Geojit Financial Services.

European Union countries on Wednesday decided to cut their gas use by 15 per cent through the next winter as the likelihood of a complete withdrawal of Russian supplies looms large.

As per the agreement by EU countries 15 per cent cut is mandatory under emergencies like severe disruptions from Russia. The EU has provided opt-outs for certain countries that are vulnerable or integral to the bloc's network. The supply through the Nord Stream pipeline is set to drop 20 per cent from Wednesday, with news reports suggesting one more turbine is due for maintenance and will be taken out of service.

Apart from the Fed decision, corporate results of global and local players are likely to guide the market trajectory. A profit warning from US retailer Walmart led to some choppiness. Heavyweights like Microsoft, Alphabet, Amazon and Apple will update their results this week.

"We expect volatility to remain high in the following sessions due to scheduled derivatives expiry and upcoming global events. As we are seeing profit taking across the board, the focus should be on identifying quality stocks and accumulating them on dips," said Ajit Mishra, VP of research, Religare Broking.

More than two-thirds of Sensex constituents ended the session with losses. Infosys declined 3.4 per cent and was the worst performing Sensex constituent. The IT major also contributed most to the Sensex loss. Hindustan Unilever fell 2.8 per cent. and Axis Bank by 3 per cent. IT stocks fell the most and its sectoral gauge fell nearly 3 per cent.