Election jitters, rate uncertainty trigger mkt tailspin for 4th day

Elections, rate cut concerns keep investors rattled

Indian equity benchmarks declined for the fourth consecutive session on Wednesday amid heavy foreign portfolio investor (FPI) selling, concerns about the election outcome, and the outlook for rate hikes in the US.

The S&P BSE Sensex ended the session at 74,503, with a decline of 668 points, or 0.9 per cent. The National Stock Exchange Nifty 50 declined 183 points, or 0.8 per cent, to end the session at 22,705.

For both indices, Tuesday’s fall is the biggest since May 9.

The India Vix — the market’s fear gauge — ended little changed at 24.2, the highest level in two years.

FPIs on Wednesday were net sellers worth Rs 5,842 crore, but domestic investors were buyers to the tune of Rs 5,234 crore.

Indian equity markets have been jittery amid concerns about the outcome of the June 4 elections. A lower turnout during the elections has raised concerns about voter fatigue and its impact on the ruling National Democratic Alliance’s (NDA’s) winning margin.

Investors are concerned that a less-than-comfortable majority will stall the policy measures markets had priced in during the rally to the elections.

Analysts said investors are booking profits and keeping some dry powder aside ahead of the election results.

Indian equity markets rallied last year amidst hopes of a thumping victory for the ruling NDA. Concerns about interest rates remaining elevated in the US also rattled investors.

The 10-year US bond yield was trading at 4.6 per cent. Friday will see the release of the US Federal Reserve’s (Fed’s) preferred inflation gauge, the Personal Consumption Expenditures (PCE) Price Index, which economists expect to rise at an annual pace of 2.7 per cent in April, the same rate as in March. The estimates for PCE have reinforced concerns about a delay in interest-rate cuts.

“Weak global cues prompted investors to take profits ahead of the US core PCE data, a key gauge of inflation that is anticipated to rise. The continued soaring of global inflation, like the latest trend in Japan and Australia, is diminishing investor expectations of a Fed rate cut soon. Broad-based weakness is noticed across sectors, with heavy underperformance from financials and information technology,” said Vinod Nair, head of research at Geojit Financial Services.

Fed officials, including its Chairman Jerome Powell, have stressed the need for more evidence of inflation hitting its 2 per cent target before cutting benchmark interest rates. Meanwhile, Fed Minneapolis President Neel Kashkari on Tuesday said the US monetary policymakers have not fully ruled out the possibility of rate hikes.

Brent crude prices rose and were trading at $84.2 per barrel amidst renewed tensions in West Asia.

Apart from the US expenditure data, investors are keenly tracking the statement of monetary policy officials and exit poll data from India over the weekend.

“The recent decline signals caution among investors, and we anticipate Nifty finding support around the 22,550 level, which corresponds to the 20-day exponential moving average. With the May derivatives contracts expiry approaching, volatility is expected to remain high. We recommend limiting aggressive long positions and adopting a hedged approach,” said Ajit Mishra, senior vice-president-research of Religare Broking.