The Indian equity markets snapped their three-day rally and lost over 1.5% on February 11 intraday after US consumer prices data came in hotter than expected. In line with soured global sentiment on high US inflation data and rate hike fears, the benchmark indices started trade on a highly negative note a day after RBI’s dovish policy had calmed the markets. The key benchmark indices continue to remain on slippery ground with IT shares as the major laggards. At close, the Sensex was down 773.11 points or 1.31% at 58,152.92, and the Nifty was down 231 points or 1.31% at 17,374.80. About 896 shares have advanced, 2318 shares declined, and 105 shares are unchanged.
“The sharp cut in the market seen on Friday is due to a sharp jump in US bond yields due to 4 decade-high inflation. However, most of this fear is already factored in. That said, we need to wait and watch how the market will negotiate a high-interest environment. Technically, the Nifty faces resistance in a cluster of 20-DMA and 100-DMA at 17,600-17,650 levels, while 17,300 is an immediate and important support level and 17,000-16,800 is a critical demand zone. We remain bullish on the road ahead till the Nifty trades above the 16,800. A breakout above 17,800 may see it head towards a fresh all-time high,” said Santosh Meena, Head of Research, Swastika Investmart.
Here are the reasons markets dropped sharply today:
US Inflation Data
US Labor Department data showed consumer prices surged 7.5 per cent last month on a year-over-year basis, topping economists’ estimates of 7.3 per cnet and marking the biggest annual increase in inflation in 40 years. Global markets fell further after St. Louis Federal Reserve Bank President James Bullard said the data had made him “dramatically” more hawkish. Bullard, a voting member of the Fed’s rate-setting committee this year, said he now wanted a full percentage point of interest rate hikes by July 1.
VK Vijayakumar, chief investment strategist at Geojit Financial Services, explained that “US inflation in January came worse-than-expected at 7.5 per cent pushing the 10-year yield to 2.03 per cent discounting a hawkish Fed, which may raise rates by at least by 100 bps this year. A rate hike by even 50 bps in March is looking increasingly probable now. This is not good news for global equity markets.”
RBI policy meet
The MPC, contrary to market expectations, kept the reverse repo rate unchanged while maintaining the accommodative stance. The MPC forecasts FY2023 real GDP growth at 7.8 per cent and the FY2023 CPI inflation at 4.5 per cent. “The RBI also turned to rebalancing liquidity on a more dynamic basis. MPC’s guidance continues to be dominated by growth concerns and softer inflation trajectory, signaling limited scope for rate actions, at least, until the June policy,” Kotak Securities said in a report.
Rupee
The domestic currency weakened to hit 75.38 a dollar on continued selling pressure by foreign investors. FIIs sold $4.45 billion in January and $1.17 billion in February. Between October and December, FIIs sold $5.12 billion in equities.
“We believe the RBI’s unexpected dovish stance with its focus on growth rather than inflation risk is a slight negative for the INR in the near term for the following reasons, including significant monetary policy divergence with other major central banks, concerns over the RBI’s FX stance, and the risk of the RBI being increasingly seen as lagging behind the inflation curve.”, Nomura Research said in a note.
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