The benchmark Sensex fell half a per cent after the US Federal Reserve raised interest rates by 25 basis points (bps) — its ninth straight hike since March 2022 — to curb sticky inflation in the world’s largest economy.
The latest hike — which has lifted rates from near-zero last year to 4.75-5 per cent, most since 2007 — came despite the turmoil in the banking sector.
The market decline was arrested as investors raised bets that the Fed had finished raising rates despite no such indication from the US central bank. The benchmark Sensex fell 289 points, or 0.5 per cent, to end the session at 57,925. The Nifty ended the session at 17,077, with a decline of 75 points, or 0.4 per cent.
Foreign portfolio investors on Thursday yanked out nearly Rs 1,000 crore from domestic stocks, while domestic institutions provided buying support to the tune of Rs 1,668 crore.
Markets have been buoyed by the “less hawkish stance from the Fed and the perception that the central bank will swiftly reverse course on interest rates. While Powell pushed back against this, markets have other ideas and that's enabled the dollar to soften, yields to pull back, and gold to rally,” said Craig Erlam, Senior Market Analyst, Oanda.
The Bank of England (BOE) joined the US and Norway to hike rates by 25 bps in the wake of persistently high inflation.
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The Norges Bank raised its benchmark deposit rate on Thursday by 25 basis points to 3 per cent the highest level since 2009 and signalled further tightening against higher price pressure.
Experts said central banks globally have do the delicate act of balancing inflation expectations and ensuring financial stability.
Investors are betting on rate cuts towards the end of the year. A section of markets is speculating Fed rates to fall to 4.1 per cent by December.
Fed chief Jerome Powell himself said that he doesn't see rate cuts this year and it will be raised further if the need be.
"Domestic equities swing between gains and losses after US Fed continued with its rate hike trajectory. Statement by Treasury Secretary to not provide blanket insurance to all the banks distraught the sentiments. The US Fed did very little to provide a concrete direction to the market. Their resolve to control inflation remains strong despite the ongoing banking turmoil," said Siddhartha Khemka, head of retail research, at Motlal Oswal Financial Services.
The overall market breadth was negative with 1,379 stocks advancing and 2,137 stocks declining. Shares of Reliance Industries fell 1.3 per cent and dragged the Sensex lower by 88 points. SBI fell the most among Sensex components at 1.7 per cent. FMCG stocks gained on safe-haven demand.
"For the bulls, 17,050-17,000 would act as important support zones while 17,200-17,250 could be key resistance areas for the short-term traders. However, below 16,950, the uptrend would be vulnerable,” said Shrikant Chouhan, head of equity research, at Kotak Securities.