Markets blink before Fed trigger

Sensex falls 324 points, worst since Aug 1; stocks slump across the spectrum

Shares posted a sharp fall for a second day amid weak global markets, on concern about a sooner than expected interest rate rise in America. Reserve Bank of India governor Raghuram Rajan’s statement on Monday ruling out interest rate cuts also hurt investor sentiment.

The BSE’s 30-share Sensitive Index shed 324 points or 1.2 per cent to end at 26,492.51. The National Stock Exchange's Nifty index closed below 8,000, declining 109 points or 1.4 per cent to 7,932. Both indices posted their biggest single-day decline since August 1.

Market players said investors continued to book profits ahead of the US Federal Reserve's open market committee announcement on Wednesday. The Fed is expected to provide guidance on the timing for its first rate rise. The meeting will also see the Fed cutting its monthly bond buying programme.

The Fed has said there would be considerable time between the end of this programme and the first rate rise, most economists believe the latter might be announced in June next year, up from an earlier expectation of a September rate rise. This could cause volatility in the market, say analysts, as this could lead to a reversal of flows from emerging to developed markets.

"We hold the contrarian view that the Fed tightening is a long-run positive, although emerging markets could well see one round of selloff in the coming months,” said Indranil Sengupta, India chief economist, Bank of America Merrill Lynch. He believes the Fed tapering will also pull down oil prices, helping India narrow its current account deficit.

Foreign investors sold shares worth Rs 800 crore on Tuesday, provisional data showed.

“The market fall is mainly due to weak global cues, especially from Asian markets. Derivatives statistics indicate foreign institutional investors have gone short on the market. However, the basic trend is still bullish and buying on dips should be the strategy, with a three-month,” said Shrikant Chouhan, head, technical research, Kotak Securities.

Chouhan said the Sensex will have strong support between 26,500 and 26,300 and should consolidate around these levels. Unlike Monday, when the selloff was largely in big stocks, smaller stocks cracked more than the large names on Tuesday. Nearly three stocks declined for every one that gained. All sectoral indices of the BSE ended with losses on Tuesday. The BSE power and realty indices fell the most at three per cent each, followed by metal, oil & gas and banking.

Among Sensex stocks, Tata Power and Tata Steel fell the most, followed by Axis Bank, Oil and Natural Gas Corporation and Larsen & Toubro.