Tech firms lead Sensex fall as US inflation triggers rate hike fear

Indian indices tumbled on Friday led by the tech pack after inflation data from the US sent bond yields soaring and fuelled speculation of a 50 basis points interest rate hike by the US Federal Reserve (US Fed) in March.

The US consumer price inflation rose at its fastest pace in 40 years, stoking fears that the US Fed was behind the curve when it comes to taming inflation and may have to resort to more hikes than earlier forecasted.

The yield on the 10-year US Treasury topped 2 per cent for the first time since August 2019, triggering risk off bets.

The Sensex tumbled over 1,000 points before recouping some losses after reports emerged that the US Fed was not in favour of an emergency rate hike nor a 50 bps increase in March.

After a volatile day of trade, the index ended at 58,153, down 773 points, or 1.3 per cent. The top five losing stocks were from the technology sector. Tech Mahindra and Infosys fell the most at 2.94 per cent and 2.71 per cent respectively. IndusInd Bank and Tata Steel were among the five Sensex stocks that managed to post modest gains.

“US inflation has hit a multi-decade high of 7.5 per cent, which has implications on the pace of interest rate increase by the US Fed. As This will lead to higher volatility in all financial markets, including equity, debt, and currency. We expect emerging market currencies to be under pressure, including INR. We also expect Indian interest rates to increase despite dovish RBI. This will have implications for equity investors. We expect this increased volatility to hit small and midcaps more than large caps,” said Naveen Kulkarni, Chief Investment Officer, Axis Securities.

The benchmark Nifty50 index fell 1.3 per cent, or 231 points, to end at 17,375. The broader markets underperformed with the Nifty Smallcap 100 index dropping 2.4 per cent and the Nifty Midcap 100 Index falling 2 per cent. Among sectoral indices the Nifty IT index fell the most at 2.7 per cent followed by Nifty Realty at 2 per cent.

The market breadth was weak with nearly three stocks declining for every one that advanced.

Foreign portfolio investors (FPIs) net-bought shares worth Rs 108 crore on Friday, while domestic institutions sold shares worth nearly Rs 700 crore.  Market watchers said the FPI buying tally was positive only because of certain large block trades.

The selling by FPIs so far this year has been the highest ever at the start of any calendar year.

“Aggressive FPI selling resulting from negative global cues have wreaked havoc in the domestic market,” said Vinod Nair, head of research at Geojit Financial Services.

“The direction of the market in the week ahead will be determined by cues from global markets while domestic macroeconomic data and corporate earnings will continue to remain in focus in the near term."