Dovish Fed fails to lift Indian markets; oil prices hit seven-week high

Trade war fears, higher oil prices weigh on investor sentiment

The US Federal Reserve providing a dovish guidance and maintaining the pace of interest rate hikes at three for the year failed to cheer the Street on Thursday.
 
The US central bank raised interest rates by 25 basis points on Wednesday and forecasted two more hikes for 2018, even as some investors feared the Fed to project three more rate hikes.
 
Despite the stance being less hawkish than anticipated, it failed to lift the mood due to renewed worries of a global trade war. A jump in crude oil prices to a seven-week high after a drop in US inventories also weighed on the performance of Indian markets.
 
The Sensex ended 130 points, or 0.4 per cent, lower at 33,006.27. The index advanced to hit a high of 33,282 intra-day, but investors sold into the rally amid expiry of the futures and options contracts. The Nifty50 index fell 0.4 per cent to 10,115, ending the March derivatives series with a 2.6 per cent loss. The 10-year bond yields closed at 7.56 per cent, down from its previous close of 7.58 per cent. The rupee closed at 65.11 against the greenback, up from its Wednesday’s close of 65.21 a dollar. The 10-year US bond yields softened by 4 basis points and the dollar index fell after the Fed announcement.

“The market started on a positive note on account of a less hawkish Fed commentary for 2018. However, the gains were short-lived due to re-emergence of a trade war. Investors are utilising every rally as an opportunity to sell and the market has come back to the 200-DMA (daily moving average) due to concerns over domestic credit growth and liquidity crunch,” said Vinod Nair, head of research, Geojit Financial Services.
 
Global equities markets gave a mixed reaction to the Fed announcement. Experts said the reaction wasn’t outright positive due to the hawkish projection for long term. The Fed revised upwards the rate projections for 2019 and 2020, given upbeat forecasts for the US economy. It raised the estimated longer term “neutral” interest rate a touch, suggesting the current tightening cycle could last for longer than previously thought. Oil prices extended their weekly gains to almost 5 per cent. Shares of ONGC and Reliance Industries gained more than 1 per cent each on account of higher oil prices. However, shares of oil marketing firms such as HPCL and BPCL declined over 3 per cent each. Shares of firms with oil-related products as their key raw material, too, fell.
 
“Key global developments and a rise in crude prices kept gains under check and subsequently pushed the markets lower. Spike in oil prices raises India’s import bill and puts additional pressure on an already-widening trade deficit,” said Anand Shah, deputy chief executive and head of investments, BNP Paribas Mutual Fund.

Shares of Hindustan Construction slumped 17.3 per cent on reports that its unit Lavasa Corp is planning to declare bankruptcy due to challenges in raising money for project completion.
 
Both foreign and domestic institutional investors were net buyers to the tune of Rs 1.6 billion and Rs 4.1 billion, respectively, on Thursday, according to provisional data by the bourses.
 
With inputs from Reuters