Markets extend fall after hawkish pause by US Fed

The National Stock Exchange’s benchmark Nifty index, which has lost 1.45% in the past two sessions, ended 0.8% lower at 19,742.35 on Thursday. The Sensex, too, ended 0.85% lower at 66,230.24.

The US Fed kept interest rates unchanged at the 5.25-5.5% target range, as anticipated. However, the majority of Fed officials favoured at least one more rate hike this year, signalling a likelihood of interest rates remaining higher for longer.

Apart from slowdown concerns, the resultant rise in the dollar index and bond yields is not favourable for foreign fund flows into emerging markets such as India. It makes equity investments in emerging markets less attractive as an asset class for foreign portfolio investors (FPIs).

FPIs were net sellers worth ₹3,007.36 crore in the Indian markets, according to provisional figures. Domestic institutions supported markets, with net buying worth ₹1,158.14 crore.

“Dark clouds are gathering on the horizon amid lengthening odds of a rate cut in the US, FPI turning sellers of Indian shares this month, brewing India-Canada tensions, the rainfall deficit raising the likely sceptre of high food inflation and with elections around the corner, “said Nilesh Shah, managing director of Kotak AMC. “We could see a combination of time and price correction in the large and midcaps and a price correction in small, micro- and mini-caps in the near term,” Shah added.

Auto stocks came under pressure, with the Nifty Auto declining 1,69%. Most of the other sectors ended lower. The broader indices, too, traded in sync with mid and small-cap indices, losing in the range of 0.8%-1.3%. Among banks, ICICI Bank, State Bank of India and IndusInd Bank were among the prominent losers, shedding more than 2%. HDFC Bank also lost 0.6%.

The Bank Nifty has seen massive short creation, with the outstanding positions of the active futures contract having risen 26% and the underlying index having fallen 1.7% at 44,623.85. A rise in such positions, accompanied by a fall in price, indicates bearish sentiment, said Ramdeo Agrawal, chairman of Motilal Oswal Financial Services Ltd.

Experts, however, maintain a positive view of the banks and even HDFC Bank, which sees heightened concerns around net interest margins, net worth and asset quality post its merger with parent Housing Development Finance Corp.

“We have high confidence that HDFC Bank will give reasonable returns over the next few years, and we are bullish financials, in general,” said Samir Arora, founder and fund manager of Helios Capital. “Even now, one can expect the lender to grow 13-15% a year. Which IT company can do that?”

Anand Shah, head of PMS and AIF investments at ICICI Prudential AMC, said: “Structural improvements in corporate banks are likely to sustain in the near to medium term”. “We continue to have select names in our portfolio, including some of which have doubled or trebled from their recent low prices,” Shah said. We believe that returns from select corporate banks, which have prudent lending processes and norms, can continue to deliver above market average returns over the next 3 to 5 years, even from these levels, he added.

Experts expect FPI flows to turn positive over time. Arora said the interest in India remains high, more so on account of the struggles faced by China. “What’s normal if you see the past 20 years is for them to be buyers as they’ve sold just four times over this period. So, flows to India will continue. Whether they increase their allocation at the expense of China is something we got to see.”

Worries around high crude oil prices and the resultant rise in the current account deficit for the country, however, still remain. Brent was still trading at $95.67 a barrel, slightly lower than $96.79 in the previous session. At a time when the dollar is strengthening, higher oil prices are putting pressure further pressure on the rupee as demand from oil marketing companies rises to meet import requirements. The rupee at 83.09 to a dollar closed almost flat over the previous day’s close. The rupee had hit an all-time closing low of 83.26 to a dollar on Monday.

“The central bank intervention capped the decline in the rupee, but demand for dollars from oil marketing companies limited the gains,” said Anindya Banerjee, vice president of currency derivatives and interest rate derivatives at Kotak Securities Ltd.

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Updated: 22 Sep 2023, 12:23 AM IST