Stock Market Today: D-Street investors faced a challenging day as both benchmark indices, the S&P BSE Sensex and NSE Nifty 50, experienced a sharp decline during early trading hours. The S&P BSE Sensex dropped to a low of 66,149, and was down around 650 points. The NSE Nifty50 was seen testing the 19,700 level.
The 30-share index has slipped from 67,838 to 66,219, losing over 1,600 points in the last three sessions of this truncated week. Other key indices Nifty 50 and Bank Nifty have also witnessed selling pressure this week. Nifty lost over 450 points in the last three sessions, while Bank Nifty dropped around 1,200 points during this time.
According to stock market experts, FIIs turning sellers, the US dollar gaining strength, the US Fed’s hawkish rate stance, and rising crude oil prices have contributed to the negative sentiment in Indian stock market. as the majority of the Indian indices were either at record highs or near their lifetime highs. Equity markets that had hit new highs in a recent rally also witnessed profit booking amid limited upside.
“Due to the rise in crude oil prices in the international market in recent sessions, the market was expecting inflation pressure on the US Fed leading to rise in speculation of a hawkish US Fed stance, which turned true in its meeting on Wednesday. Hence, expecting a rise in the US dollar, FIIs started fishing out money from assets like equities, gold, etc.,” said Prashanth Tapse, senior vice president — research at Mehta Equities.
What is the reason behind the loss of momentum in the benchmark indices after their record-breaking run? Key Points
US Fed’s ‘Hawkish’ stance
The markets have exhibited heightened volatility in recent sessions, and it appears that the policy outcome of the US Federal Reserve has further dampened the momentum on Dalal Street due to its impact on global markets. While the US Federal Reserve chose to maintain interest rates at their current levels, it adopted a more stringent monetary policy stance to address inflation concerns.
According to updated quarterly projections released by the US central bank, the Fed’s benchmark overnight interest rate may still see another hike this year, reaching a peak range of 5.50 per cent to 5.75 per cent.
This tougher stance has had repercussions on stock markets across the globe, including India, where concerns about reduced foreign investments have emerged in case the US Federal Reserve opts for another rate hike.
Jayden Ong, Senior Market Analyst, APAC at Vantage, commented, “The Federal Reserve has once again opted to maintain the benchmark interest rates within the range of 5.25 per cent to 5.5 per cent. The dot plot chart indicates the Federal Reserve’s inclination towards an additional 25-basis-point interest rate hike in 2023, with an inclination towards sustaining higher interest rates throughout 2024.”
He added, “This stance is notably more hawkish than previous indications, leading to an appreciative rally in the US dollar index, while exerting notable downward pressure on precious metals and risk assets within relative markets.”
Ong concluded, “As a result, it is anticipated that risk assets, including the US stock index, will remain under pressure. This, in turn, could have indirect repercussions on the Indian market.”
Bond yields
The yield on two-year US Treasury notes rose to a 17-year high of 5.1970%, while the 10-year yield jumped to 4.4310%, a new 16-year peak. Rising bond yields are negative for equity prices. Nasdaq ended 1.5% lower and other Asian markets like those of Japan and China were also trading over 1% lower.
Dollar index
The dollar index, which measures the American currency against a basket of rivals, rose as high as 105.59 on Thursday, its strongest since March 9.
Crude on the rise
Analysts are projecting that oil rates could touch $100 a barrel mark soon. A stronger dollar typically makes commodities such as oil more expensive for buyers using other currencies.
Rising US bond yields, stronger USD and elevated energy prices – all are ingredients for a bad recipe for Asian stocks, Nomura analysts say.
FII selloff
After splurging money on Indian stocks for six consecutive months, FIIs have been on a selling spree in September. NSDL data shows that FIIs have been net sellers to the tune of Rs 5,213 crore so far in the month.
Valuations
Equity markets that had hit new highs in a recent rally also witnessed profit booking amid limited upside.
Tapse said: Indian stock market indices were already at a record high and were staring at profit booking.
Technical factors
Nifty had on Thursday formed a long bear candle with upper shadow on the daily chart and indicated the formation of a short-term top reversal pattern in the index at the swing high of 2022 levels.
“Going forward, we expect the Nifty to undergo a healthy retracement of three-week rally (19200-20200) wherein key support is placed at 19600. The current decline is expected to result in higher bottom formation around 19600 followed by short-term consolidation.”
In the meantime, the market capitalisation of all companies listed on BSE has also fallen to Rs 319.5 lakh crore, taking the total investor wealth erosion to Rs 3.9 lakh crore.
Last night, the US Federal Reserve didn’t opt for an interest rate hike but projected one more 25-basis-point rate hike this year and 50 bps of rate cuts in 2024, versus 100 bps of 2024 cuts in June projections.
The markets are likely to remain under pressure till they adjust and digest the fact that interest rates are actually not going down in a hurry.
What Should Investors Do?
Investors should look out for the key support and resistant levels for indices while placing bets. “Sensex today has crucial support placed at 65,700 to 65,500 levels and it may go up to 68,000 in case of trend reversal. Similarly, Nifty today has major support placed at 19,600 to 19,500 levels and it has hurdle placed at 20,300 levels,” said Sumeet Bagadia, executive director at Choice Broking.
Bagadia advises ‘buy on dip’s strategy for Indian stock investors. The Bank Nifty chart suggests major support around 44,500 to 44,300 levels whereas it may rise to 46,000 to 46,500 in case of stock market’s rebound in near term, he said.
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