Fear of sustained aggressive monetary policy by US Fed rattles investors

Both Sensex and Nifty post biggest losses since Sept 26 as Covid cases in China, oil price spike worsen sentiment

Indian equity benchmarks plummeted on Friday amid investor fears that the US macroeconomic data released this week and the upcoming inflation data will bolster the case for the Federal Reserve to extend its aggressive monetary policy.

The Sensex fell 981 points, or 1.6 per cent, to end at 59,845. The Nifty ended at 17,807, down 320 points or 1.7 per cent. For both the indices, Friday's fall was the biggest since September 26.  During the week, the Sensex shed 2.4 per cent, while Nifty lost 2.5 per cent, the worst weekly declines for both since June 17.

The rout in equities so far this month has erased Rs 16.4 trillion in market capitalisation on BSE. On a month-to-date (MTD) basis, the Sensex shed 5.1 per cent and Nifty, 5.07 per cent. Energy and realty stocks fell the most this month. The Nifty Energy and Realty indices have declined nine per cent each so far in December.

The US gross domestic product (GDP) for the quarter ended September rose to 3.2 per cent from 2.9 per cent a year ago. The rise in jobless claims in the US for the week ended December 17 was less than expected. The economic data underscored the resilience of the US economy and revealed that consumer spending is firmer than what markets have priced in. A section of the market is now expecting the Fed to hike rates up to 5.5 per cent.

"If you go back a week, the market was saying the Fed's hawkish stance is wrong and interest rates have to come down next year. And that is how markets were moving globally more positively. And all the data that came last night indicated that the economy is not so bad and how can the Fed take its foot off the pedal in terms of interest rates. We are going to continue to see market volatility because of data,' said Andrew Holland, CEO, of Avendus Capital Alternate Strategies.

The re-emergence of Covid fears in India after a wave of infection in China added to the volatility. News reports suggested that as many as 248 million Chinese may have contracted the virus in the first three weeks of December.

Oil prices rose as Russia said it may cut crude production. On Friday, Brent crude was trading at $81.7 per barrel, a gain of 1.07 per cent. During the week, it rose 4 per cent.

Global factors are likely to keep the markets volatile next week.

"The Covid case count in China and concerns about a possible recession will continue to influence the global equity market in the near term,” said Shrikant Chouhan, head of equity research (retail), at Kotak Securities.

The market breadth was weak with 3,181 stocks declining against 411 advances on BSE. Barring Titan, all other Sensex stocks declined. Reliance Industries fell 2.9 per cent and contributed the most to Sensex losses. Foreign Portfolio Investors were net sellers at Rs 707 crore, according to provisional data from exchanges.