Sensex sees worst day in two months on US Fed interest rate fears

India’s stock market tumbled on Wednesday, along with global peers, on resurgent worries that the US Federal Reserve may have to raise interest rates more than what the Street has been factoring in.

The Sensex posted its worst single-day fall since December 23, plunging 1.52 per cent, or 928 points, to end the session at 59,745. The Nifty50 index closed at 17,554, with a decline of 272 points, or 1.53 per cent — the most since January 27. Overseas investors sold shares worth Rs 580 crore, while domestic institutions were net buyers to the tune of Rs 372 crore, according to provisional data from the exchanges.

Investors’ worries were stoked by strong US payroll data and higher-than-expected readings on S&P Global’s US composite purchasing managers’ index, suggesting that it would take more rate hikes for the world’s largest economy to cool off. The economic data pushed the benchmark 10-year US Treasury yield to 3.95 per cent — the highest in four months and close to 2007 highs. Typically, US bond yields and global equities move in opposite directions.

Key Wall Street indices dropped more than 2 per cent on Tuesday, their worst single-day fall in two months, setting the stage for a broader correction in Asia. These indices were again in the red in early trade on Wednesday.

Investors were also nervous ahead of the release of the minutes of the Federal Open Market Committee’s meeting later Wednesday. 

Risky assets also had to battle more headwinds. Russian President Vladimir Putin’s statement on Tuesday that Russia was suspending its participation in the New Start nuclear arms treaty weighed on sentiment.

“The possibility of US rates going up to 5.3 per cent has not been priced in. Moreover, Russia’s statement about pulling out of the arms treaty is sounding ominous and making markets jittery. Unless there is some resolution to the geopolitical tensions, markets will remain on tenterhooks,” said U R Bhat, co-founder, Alphaniti Fintech.

Banking stocks were the biggest drag on the markets, with the sectoral gauge dropping nearly 1.7 per cent. Reliance Industries, HDFC Bank, and HDFC each dropped close to 2 per cent and accounted for over 40 per cent of the index losses.

“The statements from both Russian and US Presidents led to some increase in geopolitical tensions and further brought uncertainty into equity markets. The Nifty has now fallen almost 3 per cent in the last five days. We expect the market to remain weak for the next few days amid monthly derivatives expiry and an increase in global volatility,” said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services.

Barring one, all the Sensex constituents declined. Adani Enterprises and Adani Ports were the biggest losers in the Nifty50 pack. The overall market breadth, too, was weak with 884 stocks advancing and 2,592 declining.