3 reasons why the Sensex ended 861 points lower at 57,973 levels on Monday

Equity markets slumped on Monday as Dalal Street pull-backed after the US Fed diminished the optimism that the it may turnaround from its aggressive monetary policy amid declining commodity prices. The US central bank instead said that the era of interest rate increases is far from over.

The BSE Sensex index tanked 1,467 points to hit an intra-day low of 57,367 on Monday, while the NSE Nifty50 sank 393 points to touch the day’s low of 17,166. However, both the indices recovered losses partially as the trade progressed.

While the Sensex ended the day at 57,973 levels - down 861 points, the Nifty closed 246 points lower at 17,313 levels. 

"Investors had already got the wind of bearish undertone for the start of the week, after the US Fed chairman's speech on Friday talked about further rate hikes going ahead to tame inflation. And as expected, Sensex crashed nearly 1,500 points in early trades before recovering some ground to close off its day's low. Traders are expecting more bouts of volatility in coming sessions on concerns that continuation of rate hikes in the US could pose a threat to the global economy and hurt growth prospects," said Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities.

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Monday’s market mayhem was led by the IT pack as Nifty IT index cracked over 4 per cent. Tech M, Infosys, HCL Tech, Wipro and TCs slipped 2-5 per cent. 

"Markets expected Powell to remain hawkish at Jackson Hole but the ultra-hawkish tone of the Fed chief's message and his warnings of some economic pain were not expected and factored-in by the markets. The 17 per cent rally in the S&P 500 from mid-June to mid-August was mainly driven by an expectation that with declining inflation Fed would pivot towards lower interest rates by early 2023. This expectation has been belied by Powell's message that rates will go up and remain there for 'some time'. The buy on dips texture of the market is unlikely to hold. Investors should not rush in to buy the dips now and should wait for the dust to settle,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Meanhwile, below are the top factors that led to the domestic selloff on Monday: 

Powell’s hawkish pivot: The US Fed chair Jerome Powell’s strenuous reaffirmation to control inflation has ignited a global selloff as he distilled the market’s hopes of easy monetary policy on Friday. He made it clear that the central bank has no intention of backing off from raising rates anytime soon. “Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy,” he said.

US markets plunged sharply after Powell’s speech on Friday. The Nasdaq shed the most by falling nearly 4 per cent. The futures of the frontline indices were also steeply lower in after-market hours. The same was true for Asian equities as Nikkei, Hang Seng, Strait times indices tanked up to 2.9 per cent on Monday. 

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Fresh recession fears: The US Fed's chair did not only maintain that the bank will continue with interest rate hikes, but he also triggered renewed fears of an impending recession in the US economy. “While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” Powell said. 

That apart, spiralling gas prices spiral in Europe are further lending strength to fears of recession in major Western economies. European gas prices hit a record high above €343 per megawatt hour ($100 per million British thermal units) on Friday, hinting at the stark threat to energy-intensive industries.

Risks to foreign inflows: As rate hikes are likely to remain the order of the day, a sinking rupee, and brent crude persistently around $100 per barrel levels also raise concerns about the recent strength seen in foreign flows.The rupee on Monday slumped to an all-time low of 80.14/$ and crude prices rose to $102/ bbl. Analysts said these factors weakens the case for consistent foreign inflows. 

“The sharp rise in the Dollar index above 109 and the 10-year bond yield spiking to 3.1 per cent are negative for capital flows to EMs like India. FPIs are unlikely to continue buying in India in this scenario. V K Vijayakumar of Geojit Financial Services said.