Mkts slip on Fed rate hike talk; Sensex falls 388 pts, lowest since June 30

Concerns about the rate-hike trajectory and China’s ailing economy hit investor appetite for risky assets, pulling down domestic equity markets on Thursday. The S&P BSE Sensex fell 388 points, or 0.6 per cent, to 65,151, the lowest close since June 30. The broader National Stock Exchange Nifty dropped 100 points, or 0.5 per cent, finishing at 19,365, the lowest close since July 10.

The minutes of the US Federal Reserve’s (Fed’s) July monetary policy meeting indicated further interest-rate increases might be required to tame inflation. Two officials favoured keeping the rates unchanged.

Analysts said many investors had believed that the rate hikes had ended, but the minutes suggested that they are considering a tighter monetary policy.

The Fed’s July rate hike brought the US benchmark rate to the range of 5.25-5.5 per cent, the highest level in 22 years. The rate hike in July also marked a resumption of hikes after Fed officials left rates unchanged in June for the first time since they began raising rates in early 2022.

China’s ailing economy compounded investor worries. News reports quoting data from property agents and private data providers suggested a slump in the country’s real estate market. The figures showed existing home prices falling by at least 15 per cent in prime neighbourhoods of major metropolitan areas like Shanghai.

On Wednesday, Fitch Ratings said it may reconsider China’s sovereign credit score and extend its balance sheet to support the economy. Earlier this month, the rating agency had downgraded the US, citing expected fiscal deterioration and a growing general government debt burden.

“We had a few negative news flows in the past few days. Our inflation came in at a higher-than-expected level, the Fed minutes confused the trajectory for rate hikes, the bond yields are rising, and China is struggling. The market is cooling down because of these negatives. There is no positive catalyst at the moment. We don’t know where the Fed is going to go. We should keep an eye on currencies and bond yields because that will tell us where the market is headed,” said Andrew Holland, chief executive officer, Avendus Capital Public Markets Alternate Strategies.

More than two-thirds of the Sensex stocks declined. Reliance Industries declined 1.2 per cent and contributed the most to Sensex’s decline, followed by ITC, which was down 2.04 per cent.

Foreign portfolio investors (FPIs) were net sellers of Rs 1,511 crore, whereas domestic institutional investors were net sellers of Rs 314 crore. FPI buying has been muted this month. So far in August, FPIs are net buyers of Rs 9,381 crore.

Market breadth was mixed, with 1,802 stocks declining and 1,784 stocks advancing on the BSE.

“The Nifty has gone sideways for the past three days, taking support from the 19,317-19,326 band. However, it ended in the negative for the day. A downward breakout of 19,300 seems more likely, although the follow-through move may not be large. On rises, 19,483 could offer resistance,” said Deepak Jasani, head of retail research at HDFC Securities.