US Fed jitters: Sensex, Nifty near 2015 lows, FIIs pull out Rs 10,000 crore in one month

Markets fall for a fifth session; FIIs pull out Rs 10,000 cr in one month; India one of the worst-performing markets since November

Indian markets continued to face turbulence ahead of next week’s US Federal Reserve meet, where the central bank is expected to lift interest rates for the first time in a decade. The benchmark Sensex and Nifty indices fell for a fifth day to the lowest level in three weeks and less than two per cent shy of 2015 lows.

The Sensex on Tuesday ended at 25,310.33, down 219.78 points, or 0.86 per cent, while the broad-based Nifty fell 63.7 points, or 0.82 per cent to 7,701.7. Both the indices fell for a fifth consecutive day and ended at the lowest level since September 8.  The 2015 low for the Sensex is 24,894, while that for Nifty is 7,559, touched on September 7 after China had devalued its currency.

The rupee on Tuesday lost 11 paise against dollar to hit a fresh two-year low of 66.84. Extreme volatility in domestic equities as well as expectations that the US Federal Reserve was on track to raise interest rates for the first time since 2006, predominantly impacted the sentiment of the rupee.

“We are seeing pre-rate hike jitters. It is more of an adjustment. As the rate hike is almost a given, investors aren’t waiting for the actual hike to realign their portfolios,” said Siddharth Bhamre, head of equity derivatives, Angel Broking.

Bracing for the start of the interest rate tightening cycle in the US, overseas investors continued to take off money from emerging market like India. On Tuesday, foreign institutional investors (FIIs) pulled out Rs 518 crore from the cash market, extending their one-month selling tally to more than Rs 10,000 crore.

Market pundits say interest rate hikes by Fed will be negative for equities, as it will end the easy money regime that has fueled stock prices over the last few years.

“Foreign investors have been unwinding massively before the Fed meet now for nearly a month, as the chances of the rate hike has got cemented by the economic data. Even some hedge funds and passive funds have been taking out money from India and other emerging markets,” said Yogesh Radke, head of quantitative research at Edelweiss Capital.

Emerging markets have seen outflows of $60 billion (Rs 4.011 lakh crore) in 2015. Foreign flows into Indian markets although are still positive but have more than halved from their 2015 peak. After pumping in over $7 billion (Rs 46,795 crore) into the Indian markets this year, FIIs have pared their investments to only $3 billion Rs 20,046 crore).

Experts say the market has more or less priced in rate increase by the US Fed and the correction might not be steep even if Fed increases rates next week. The US Federal Open Market Committee will announce its decision on the monetary policy at the end of its two-day meet on December 16.

“The Fed adjustment is more or less done. The bigger risk now is for short-sellers of Fed not hiking rates. We won’t advice shorting at these levels,” said Bhambre.

“Nifty is now in the vicinity of minor supports near 7,700. With near-term momentum conditions in oversold territory and provided 7,630 holds, a pullback can be anticipated in the next few sessions towards 7,800,” said Radke.

The Sensex, after dropping eight per cent in 2015, trades at 15 times its 12-month forward projected earnings. Although the index is less expensive compared to two months earlier, it still trades at a premium to the MSCI emerging markets.