Markets tumble on US rate hike fears

Sensex falls 2.05%, the most since January

Fear that the US Federal Reserve might increase rates sooner than expected led to a sharp decline in Indian equities on Monday, with the benchmark indices recording their sharpest fall in about two months. The BSE Sensex lost 604.17 points, or 2.05 per cent, to close at 28,844.78, its steepest fall since January. The National Stock Exchange Nifty closed at 8,756.75, down 181 points, or 2.03 per cent.

Key global markets were also in the red on Monday.

"Primarily, it is because of strong US jobs data, which has raised fears of a rate hike earlier than expected. This, coupled with warnings from the technology sector on growth prospects, led to negative sentiment," said Nirmal Jain, chairman, IIFL.

"It started on fears that the US might raise interest rates as early as June, rather than in the third quarter of 2015, as was expected earlier. The situation in Europe, too, isn't so good," said U R Bhat, managing director, Dalton Capital Advisors.

Speculation on a rate increase in the US started after the unemployment data for that country for February was the lowest in about six years. Greece and the European Union are yet to take a decision on a bailout package for the former.

On Monday, there were about two losers for every stock that gained on the BSE - while the number of those that rose stood at 977, 1,889 stocks ended with losses. Volatility index India VIX was up 9.52 per cent, closing at 15.81.

Eleven of the 12 sectoral indices ended with losses on Monday. The banking index was down 3.01 per cent; profit-booking and fears pertaining to non-performing assets contributed to the losses, analysts said.

Deven Choksey, managing director of KR Choksey Securities, said expectations of increased year-end borrowing, primarily from the government, had hit yields and, consequently, banking stocks.

"Bond yields went up sharply today (Monday), contradictory to the interest rate cuts that have happened. This will have an affect on the mark-to-market value of the bonds held by banks, which is why banking stocks saw a decline," he said. Indices tracking the power and capital goods sectors were down 2.93 per cent and 2.74 per cent, respectively. The only sectoral index to end with gains was health care (0.3 per cent), which tends to fall less than its peers during a rout.

IIFL's Chairman Nirmal Jain said this was likely to be a temporary correction rather than a drawn-out decline.

"India will continue to do well and flows should continue. Foreign investors factored in the rate rise when they would have made allocations. It is unlikely that this will change suddenly," said Bhat.

On Monday, foreign institutional investors were net buyers by Rs 838.30 crore, according to provisional exchange data. Domestic institutions were net sellers by Rs 35.31 crore. Securities worth Rs 3.02 lakh-crore changed hands on Monday, in line with the volumes in the past month.

Of the 30 Sensex stocks, Hindustan Unilever fared the best, rising 3.76 per cent to close at Rs 974.3. Sesa Sterlite was down 5.21 per cent to close at Rs 199.15, while Hindalco Industries lost 4.7 per cent to close at Rs 140.95.

Choksey said for the Nifty, 8,700 would be a key support level.