Stocks down on US Fed rate rise worry

Nifty, Sensex down over 1% each

Indian equities slid the most in three weeks on Thursday, on weak global cues after the US Federal Reserve (US central bank) hinted at a possible rate increase next month.

The outcome of the legislative assembly elections which showed Prime Minister Narendra Modi’s main national opponents losing control of two states failed to lift sentiment.

The minutes of its April policy meeting, issued on Wednesday by the US Fed, hint at the possibility of a rate rise in June. The central bank had raised rates for the first time after nearly a decade in December 2015.

On Thursday, the 50-share Nifty benchmark on the National Stock Exchange breached 7,800 and slid 1.1 per cent to 7,783.40. Its BSE counterpart, the Sensex, closed 1.2 per cent or 305 points down, at 25,399.72. The Fed minutes provided a jolt to global markets that had until Monday all but ruled out the prospect of US interest rates being raised in June. Fed Funds futures show the odds of such a move surged to 32 per cent on Wednesday, after tripling to 12 per cent in the prior session.

Most Asian indices ended in the red on Thursday, with Singapore’s Straits Times and Taiwan’s SE Weighted Index sliding the most, losing 1.3 per cent and 0.8 per cent, respectively. European shares were trading in the red as well as of 5.30 pm India time, with the FTSE 100, DAX and CAC 40 down anywhere between 0.6 per cent and 1.2 per cent.

“The fall in crude oil prices and weakness in the Asian markets dampened sentiments in early trade. On the domestic front, cautiousness ahead of the state election results also weighed on the sentiments. More than this, the latest US Fed meeting's minutes has resurfaced the fear of a rate hike in the near future, which pushed the markets lower across the globe,” said Jayant Manglik, president at Religare Securities.

The rupee slid for a sixth day, longest losing stretch since last August, as Asian stocks and currencies fell after the Fed record showed most of its rate setting officials in favour of boosting borrowing costs next month. Higher interest rates would temper inflows to emerging markets, including India. The Congress party's losses in Assam, Bengal, Tamil Nadu and Assam are held to dilute its ability to thwart policies crucial to Modi’s economic agenda. He needs opposition support in the Rajya Sabha to enact changes such as a national goods and services tax.

The markets' breadth was weak, with 1,664 declines compared with 901 advances. Twenty four of the 30 BSE Sensex components ended in the red. All sectoral indices closed in the red, with BSE Capital Goods declining the most at 2.4 per cent.

“Every time the Nifty has traded towards the lower range (towards 7,700), we have seen buying from institutions. Barring public sector banks, other sectors have not disappointed on expectations. They might actually create a rally after this (corporate) results season, as and when the monsoon sets in,” said Motilal Oswal, head of Motilal Oswal Financial Services.