Biggest single-day slump for markets in 3 months; Sensex falls 1,093 pts

India’s benchmark indices posted their biggest single-day fall in three months as the sell-off in global markets continued amid a surge in the US dollar, which triggered bets of an outsized rate hike by the US Federal Reserve. A bunch of weak economic data, both domestic and global, also clouded the economic outlook.

The Sensex slumped 1,093 points, or 1.8 per cent, to finish at 58,841, while the Nifty ended at 17,531, with a decline of 346 points, or 1.9 per cent — the steepest fall since June 16. Both indices fell about 1.7 per cent during the week, the most since the week ended June 19.  

Foreign portfolio investors (FPIs) sold shares worth Rs 3,260 crore on Friday, extending this week’s sell-off. In the previous two trading sessions, they had sold equities worth Rs 2,053 crore.

Experts said hopes that the Fed would go softer on rate hikes had been dashed by the latest inflation figures. The stronger-than-expected US employment data further strengthened the case for an aggressive monetary tightening. 

Most investors are now pricing in a 75-basis-point increase by the Fed next week, with some even fearing a 100 bps hike in interest rates. The Fed has already hiked rates by 75 bps twice.

“The Fed's inflation target is 2 per cent. And you need to hike continuously to reach there. The downturn has to be significant for the Fed to change its mind,” said Andrew Holland, CEO, Avendus Capital Alternate Strategies. The outlook by FedEx was an extra nail in the coffin, he added.

The delivery giant on Friday withdrew its earnings forecast, flagging weakness in Asia and Europe and fearing further deterioration in business conditions.

The slashing of India's economic growth forecast by global rating agency Fitch added to investor woes. Fitch cut India’s gross domestic product (GDP) growth forecast to 7 per cent for the current fiscal year, as against its earlier projection of 7.8 per cent. Further, it projected the growth to slow down to 6.7 per cent in the financial year 2023-24 (FY24), compared to the previous estimate of 7.4 per cent.

Fears of sharper rate hikes and the gloomy economic outlook have led to investors seeking refuge in the US dollar and other safe assets. The dollar in the last three sessions rose 0.7 per cent against the rupee.

“Investors are widely expecting an aggressive rate hike next week, with one-third of market respondents expecting the Fed to do 100 bps, whereas a 75-bp hike is mostly discounted. To combat pressure on the rupee, the RBI most likely will have to do at least 50-bp rate hikes soon,” said Aishvarya Dadheech, fund manager, Ambit Asset Management.

The rout in tech stocks exacerbated with the Nifty IT dropping 3.7 per cent on Friday, extending its year-to-date loss to 31 per cent. The Nifty IT index dropped 7 per cent this week amid a decline in global technology shares and a recent downgrade by Goldman Sachs.

Banking stocks managed to outperform this week. The Bank Nifty index made a lifetime high on Wednesday and finished the week with 1 per cent gain.

"Among the sectoral pack, banking is still looking comparatively stronger so participants can continue with buy-on-dips in private banking names,” said Ajit Mishra, VP of research, Religare Broking.

The market breadth was weak with 972 stocks advancing and 2,532 declining.