Market trade lower for second consecutive day: 6 factors that are dragging the indices

India’s benchmark Sensex and Nifty indices declined for the second session in a row on January 19, each dropping over 1 percent, tracking losses in global equities amid expectations of an interest rate hike by the US Federal Reserve and a surge in crude oil prices.

The Sensex had fallen 0.9 percent on January 18, while the Nifty lost 1.07 percent.

Here are six reasons why the market was trading lower on January 19:

Globally, the markets witnessed selling pressure after a surge in US treasury yields amid rate hike worries. The US 10-year yield hit a two-year high, indicating that investors were preparing for the possibility of more aggressive tightening by the Federal Reserve. The Next US Fed meeting is scheduled on January 25-26.

Crude oil prices soared to their highest levels in over seven years as geopolitical tension intensified in West Asia, raising concerns over a likely supply disruption in an already tight market.

Goldman Sachs said in a note that it sees Brent prices at $90 a barrel in the first quarter of 2022, $95 in the second quarter, and $100 a barrel in the last two quarters of the year. It raised its Brent oil price forecasts to $96 for 2022 and $105 for 2023, from $81 and $85 per barrel, respectively.

Covid-19 cases in India and globally continued to rise. This may further weaken world economic growth. India added 282,970 Covid cases and 441 related deaths over the past 24 hours, the government said January 19. The active caseload increased to 1.8 million from 1.73 million and the Omicron tally rose 0.8 percent to 8,961.

Early trends show that most companies reported earnings in line with estimates. However, higher input costs have started pinching profit margins. Analysts said the continued rise in Covid cases and the increase in oil prices are likely to hit margins further in the next quarter.

After buying about $650 million in Indian equities from January 3 to January 6, foreign institutional investors (FIIs) turned sellers amid the selloff in global equities. Since January 7, they have sold $800 million in equities.

Investors are cautious ahead of the Union Budget, which is likely to be presented on February 1. Amid the rise in Covid cases, the government may target a less ambitious fiscal deficit of 6.3-6.5 percent. Analysts said a cut in government expenditure could hurt growth prospects.