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Earnings disappointment, US Federal Reserve hike drag benchmark indices

Sensex, Nifty drop over 0.6% each

BSE, NSE, Sensex, Nifty, stock markets

Sundar Sethuraman Mumbai

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Benchmark indices declined over half a per cent on Thursday as investors digested the latest interest rate hike by the US Federal Reserve (Fed) and earnings disappointment by blue chip companies. The expiry of July series monthly derivatives contracts and selling by overseas funds also weighed on sentiment.

The Sensex ended the session at 66,267, dropping 440 points or 0.66 per cent, while the Nifty50 ended at 19,660, down 118 points or 0.6 per cent.

The Fed, on Wednesday, hiked the policy rate for the 11th time since March 2022 after pausing in June. The latest 25-basis point hike took the Fed's benchmark federal funds rate to 5.25 to 5.5 per cent, the highest level in 22 years. Fed chief Jerome Powell further said that US monetary policymakers have a long way to go to return inflation to their 2 per cent target.

The Fed chief refused to give any timeline regarding the next hike and said it would consider economic data before its next meeting in September. Powell added that it was possible for Fed to raise rates again at the September meeting if the data warranted.

Since early last year, the US Central Bank has engaged in the most aggressive tightening campaign to tame inflation, which had reached a 40-year high and had indicated two more 25 bps hikes after pausing rates in June.

"Further rate hikes could be detrimental to economic growth prospects raising the chances of a hard landing. So, the interest rate cycle has largely peaked, but its impact will be seen in the forthcoming quarters. India is also placed similarly, with rate hikes primarily done. There is a possibility of one more rate hike, but Reserve Bank of India’s (RBI's) stance is likely to be balanced,” said Naveen Kulkarni, chief investment officer, Axis Securities PMS.

Apart from economic uncertainties caused by the rate hikes, earnings disappointments also weighed on investors' minds. Last week, Infosys, the country's second-biggest software exporter, halved its full-year revenue growth outlook, fuelling concerns over IT sector growth. Investors were disappointed by Hindustan Unilever’s results last week. Tech Mahindra and Nestle India were the latest index constituents that failed to meet Street expectations. Shares of Tech Mahindra fell 3.8 per cent and Nestle India dropped 2.1 per cent — most among Sensex components after Mahindra & Mahindra, which fell 6.4 per cent.

"There is a valuation discomfort for sure. But some earnings disappointment has also come. The better earnings have already come; now, the big negative surprises will start trickling, which is bothering investors. Moreover, the RBI may have to hike rates as the Fed has raised its borrowing costs," said UR Bhat, co-founder of Alphaniti Fintech.

Foreign portfolio investors (FPIs) sold shares worth nearly Rs 4,000 crore on Thursday, while domestic institutions provided buying support to the tune of Rs 2,528 crore.

The market breadth was mixed with 1,799 stocks declining and almost an equal number advancing. More than two-thirds of the Sensex stocks fell. Shares of HDFC Bank fell nearly a per cent and made a 105-point negative contribution to the 30-share index.

M&M, Reliance and ITC were the other stocks that were the biggest drag on the index. From the peak of nearly 20,000, the Nifty50 is now down 1.7 per cent after ending in the red in three out of five trading sessions.

Day after RBL stake buy, M&M shares decline 6.4%
Shares of automotive major Mahindra & Mahindra (M&M) dropped 6.4 per cent — most in over three years — after the company disclosed it has picked up a minority stake in private sector lender RBL Bank. Its shares closed at Rs. 1,447, down Rs. 99, or 6.4 per cent, over its previous day’s close. The fall was its biggest since April 21, 2020.  Shares worth Rs. 1,730 crore were traded on the NSE, while BSE also saw 10 times more than usual. Experts said investors normally dislike investment by firms  in non-related businesses. Shares of RBL Bank fell 2.6 per cent to Rs. 232.6.

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First Published: Jul 27 2023 | 8:45 PM IST

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