Indian shares nosedived in the morning trade on August 29, mirroring the sharp decline in the US market on August 26 and weakness in the Asian counterparts as hawkish commentary from the US Federal Reserve chairman Jerome Powell spooked investors.
In his much-awaited speech at Jackson Hole symposium last week, Powell said the US central bank would continue to take strong action through higher interest rates. Analysts said the target rate forecast had moved up from 2.50 percent to 4 percent.
Powell’s tough love sent markets tumbling. The 30-pack Sensex tumbled about 1,100 points, or 1.85 percent, to 57,771. The broader Nifty was down 1.9 percent, or 330 points, at 17,230.
Shareholder’s wealth, reflected in the market cap of BSE-listed companies, fell by Rs 3.90 lakh crore to Rs 273.06 lakh crore.
Tech Mahindra, Infosys, Hindalco Industries, HCL Tech and Wipro, which count the US as their major market, were the worst hit on the Nifty, down 3-6 percent. Nestle India, Britannia and Apollo Hospitals were the few names to buck the trend to trade in the green.
All sectoral indices were trading in the red. IT stocks were among the biggest casualties, with the Nifty IT index falling more than 4 percent in the morning. Metals, banks and realty stocks, too, were hammered.
Here are the factors weighing the Indian market down:
1 Powell’s speech
Powell’s speech was inferred as hawkish and thus investors took a flight from riskier assets.
“Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance. Reducing inflation is likely to require a sustained period of below-trend growth,” said Powell.
Joseph Thomas, Head of Research, Emkay Wealth Management, said given the affirmation of a restrictive policy from the Fed, the consequences for the rest of the world were far from over.
The dollar would gradually edge higher and the interest rate policies for the rest of the world, too, would be more inclined towards hard money policy, he said.
“With credit growth at 18 percent and the deposit growth much lower, and an expansive government borrowing programme staring at a dwindling systemic liquidity, further rate hikes from the RBI, and higher market yields could be anticipated,” Thomas said.
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2 Global selloff
Led by technology names, US stocks ended sharply lower on August 26. The Nasdaq led the decline among the three US benchmarks, registering its worst daily performance since June 16.
The S&P 500 lost 141.46 points, or 3.37 percent, to end at 4,057.66 points, while the Nasdaq Composite lost 497.56 points, or 3.94 percent, to 12,141.71. The Dow Jones Industrial Average fell 1,008.38 points, or 3.03 percent, to 32,283.40.
On August 29, Asian markets caught on. MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.7 percent. Japan's Nikkei dropped 2.3 percent, while South Korea’s Kospi was down 2.3 percent.
Also read: Uday Kotak warns of sharp correction in market after Jerome Powell's 'economic pain' caution
3 Crude rising
Some long strides in the oil market over the last few days have also dented investor confidence. The benchmark Brent crude, which dropped to $92, was again trading above $100. The prices, though, came down after Powell’s speech but not enough to alleviate concerns of a rise in raw material prices and their impact on India’s fiscal math.
4 Plunging rupee
The unfavourable movement in the currency market also did not help. The Indian rupee plunged to a record low as the demand for the dollar rose. The rupee fell to 80.11 against the dollar early on August 29, against the previous close of 79.87.
“A strong US dollar index, high US bond yields with a deeply inverted yield curve and weak equity markets all make it challenging for FPI and carry trade flows in EMs,” said Anindya Banerjee, VP, Currency Derivatives & Interest Rate Derivatives at Kotak Securities. “We expect a range of 79.70 and 80.50 over the next one or two weeks.”
Also read: Stocks jilted as central banks promise tough love
5 RIL AGM and other events
The market was also nervous due to some of the key events that are lined up. Reliance Industries, the highest-weighted stock of the Nifty 50 index, will hold its annual general meeting later in the day. The market was also volatile in anticipation of GDP data and monthly auto data.
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