Markets extend losses amid recession fears, indices dip second week on trot

Commentary by central banks on their resolve to tame inflation rattles investors, who were hoping that interest rates have peaked

Indian equity benchmarks continued their slide on Friday on concerns that the resolve of central banks to tame inflation will push countries into recession. The benchmark Sensex fell 461 points, or 0.7 per cent, to end the week at 61,338. The Nifty, on the other hand, ended the session at 18,269, a decline of 146 points or 0.8 per cent. Both the benchmark indices posted their second straight weekly decline.

The commentary by central banks on their resolve to tame inflation rattled investors, who were hoping that interest rates have peaked. Following the Federal Reserve, the European Central Bank (ECB) raised rates by 50 basis points and warned investors to brace for a long-running campaign to contain inflation. The Bank of England (BOE) raised rates by 3.5 per cent, its ninth hike in a row.

"Global markets extended their rout as the ECB and BoE followed the Fed in raising policy rates by half a per cent while maintaining a hawkish tone on inflation. The aggressiveness of central banks in combating inflation has raised concerns about the global economy's health. Despite attempts to recoup losses, a lack of global support pushed the indices back into negative territory" said Vinod Nair, head of research, Geojit Financial Services.

Analysts said the investors are worried as there is no clear timeline about when rate hikes are likely to end and how deep the recession will be.

Foreign portfolio investors (FPIs) sold shares worth Rs 1,975 crore on Friday, while domestic institutional investors were net buyers to the tune of Rs 1,542 crore.

This week the Fed made it clear that interest rates will remain higher for a longer period of time. The Federal Reserve chief Jerome Powell said the US central bank will not stop its efforts to tame inflation despite recession fears. After four 75 basis point hikes, the Fed raised rates by 50 basis points to a 4.25 to 4.5 per cent target range. The Fed chief said restoring price stability will require maintaining a restrictive policy stance for some time.

Equities had rallied last month hoping central banks would soon pause hikes after a statement by Fed chief Jerome Powell hinted at a policy shift.

Analysts said investors and central banks have different views on inflation and this debate is likely to add to market volatility.

"Weak global cues are weighing on the sentiment and indications are in the favour of further decline. Nifty has breached crucial support at 18,300 and now the next support comes at the 18,000 zones. In absence of any major event, global cues will continue to dictate the trend. Meanwhile, traders should align their positions as per the market trend and avoid making aggressive bets," said Ajit Mishra, VP- of technical research, Religare Broking.

The market breadth was weak with 2,120 stocks declining and 1,414 stocks advancing. Barring four, all Sensex constituents ended the session in the red. TCS fell 2 per cent and contributed most to the Sensex losses followed by Infosys which fell 1.1 per cent. Realty stocks fell the most and their sectoral index on BSE fell 1.6 per cent.