Sensex posts steepest weekly fall in 15 months, ends 221 points lower

30-share index loses 2.7% in 4 days, barely holds 66K

The benchmark Sensex declined for a fourth straight day on Friday to cap its worst weekly fall in 15 months. Sustained selling by overseas funds amid rising bond yields in the US and valuation concerns weighed on the market performance during the week.

The Sensex ended Friday's session at 66,009, with a decline of 221 points, or 0.3 per cent. During the week, the 30-share index declined 2.7 per cent, its biggest weekly loss since June 2022. The Nifty50, meanwhile, fell 68 points, or 0.3 per cent to close at 19,674. The 50-share index wet down 2.6 per cent for the week, the worst weekly fall since February 2023.

Hawkish statements by major central banks -- including the US Federal Reserve (Fed) -- and dampened sentiments led investors to dump risky assets. Rising crude oil prices have added another layer of complexity to the struggle of central banks to bring inflation to the target levels. The Brent crude on Friday was trading at $94 per barrel.

Foreign portfolio investors were net sellers to the tune of ~1,326 crore, according to provisional data from exchanges. In the preceding two sessions, they sold shares worth over ~6,000 crore

“There has been $1.1 billion of foreign equity outflows in September-to-date after $15.9 billion of net foreign equity inflows this year; India is the strongest recipient in Asia ex-Japan. The rationale for these inflows has included factors such as a reallocation from China, the end of the RBI’s (Reserve Bank of India’s) rate hike cycle, improved local growth prospects and global growth holding relatively steady. However, the risk of further outflows is rising, as sentiment is deteriorating from twin deficits and election concerns,” said a note by Nomura on Friday.

Most emerging markets (EMs) fell during the week amid outflows from overseas investors. China was the only market that bucked the trend, gaining about a per cent during the week.

On Wednesday, the Fed kept its benchmark rates unchanged, but its quarterly projection said that borrowing costs must remain higher for longer. Analysts said that the Fed's projections were much more hawkish than markets had priced in.

The Fed has raised interest rates from nearly zero to a 22-year high of 5.25 to 5.5 per cent in the last 18 months. However, the US economy has remained resilient amid strong consumer spending and a resilient labour market.

Similarly, Norway's Norges Bank on Thursday raised borrowing costs to the highest level in more than 14 years and said it would likely raise rates again. And Sweden's Riksbank increased its key rate and said more hikes were possible.

The increasing possibility that monetary policy will lead to recession is rattling investors. Analysts said that more than rates remaining elevated, it is the question of whether inflation will be tamed without a recession that investors are worried about as markets have not factored in that possibility.

Analysts also pointed out that markets had hoped that interest rate hikes would end by 2023. And that scenario has now been muddied by comments from the Fed and other central banks.

"Sharp surge in US bond yields following the Fed's decision to maintain a higher interest rate stance, and heavy selling by FIIs (foreign institutional investors) led to profit booking in the market. Given the global concerns, we expect the market to remain under pressure in the near term. Thus, we suggest investors have higher allocation towards defensive and large-caps,” said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services

The market breadth was weak, with 1,953 stocks declining and 1,689 advancing.