Mirroring the trend of its major global peers, domestic market benchmarks the Sensex and the Nifty ended with a significant cut of over a percent on August 29 as investors feared aggressive rate hikes by the US Fed and European Central Bank.
In his speech at Jackson Hole central banking conference in Wyoming, US central bank chief Jerome Powell on August 26 said that Fed would raise rates as high as required to bring down inflation which will be painful for the economy.
"Reducing inflation is likely to require a sustained period of below-trend growth. While higher interest rates, slower growth, and softer labour market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain," Reuters reported Powell saying so.
Powell's comment sent a shiver down investors' spines. While the anticipation of rate hikes was always there, there were some hopes that the tone of the Fed hair would be less hawkish. That hope was shattered as Powell clearly signalled that the US economy was headed for a painful period of slow economic growth due to rate hikes.
"Powell’s hawkish tone during the Jackson Hole symposium pointed towards a stricter rate hike while investors were expecting a milder policy action post the release of the softer July inflation reading. This has increased concern about an economic slowdown, which has caused a significant selloff in the US market and spillover effects on markets around the world," said Vinod Nair, Head of Research at Geojit Financial Services.
"The sell-off in emerging markets like India was exacerbated by concerns over the possible withdrawal of foreign funds, which was the backbone of the recent market rally," he added.
Sensex opened at 57,367.47, down 1,466 points, against the previous close of 58,833.87 and ended 861 points, or 1.46%, lower at 57,972.62. Nifty closed the day at 17,312.90, down 246 points, or 1.40%.
Shares of Tech Mahindra, Infosys, Wipro, HCL Tech and TCS ended as the top laggards in the Sensex index.
BSE Midcap index fell 0.80% while the Smallcap index ended 0.57% lower.
Among the sectoral indices, BSE IT and Teck indices fell more than 3% each. Banking, metal and finance indices fell up to 2%.
The overall market capitalisation of BSE-listed firms dropped to ₹274.7 lakh crore from ₹277 lakh crore in the previous session on August 26, making investors poorer by nearly ₹2.3 lakh crore in a single day.
While the market suffered losses, some 175 stocks, including Indian Hotels, Escorts Kubota, Adani Transmission, Jyothy Labs, Time Technoplast and Ratnamani Metals & Tubes, hit their fresh 52-week highs in intraday trade on BSE.
Santosh Meena, Head of Research, Swastika Investmart pointed out that the Nifty witnessed profit booking from a psychological level of 18,000 and slipped below 20-DMA (daily moving average) where 17,150 is an important support level then 200-DMA of 17,000 is a sacrosanct support level.
"A 38.2% retracement of the previous rally comes around 16,900, therefore, bulls will try to defend the 17,150-16,900 area to come back in the game. This correction is a buying opportunity because the market may try to approach a fresh all-time high near Diwali," said Meena.
Rupak De, Senior Technical Analyst at LKP Securities said the Nifty slipped sharply lower as it broke down from consolidation on the daily chart suggesting a rise in the bearish bet in the market.
"The momentum oscillator RSI is in bearish crossover and falling towards the oversold zone. The short-term trend at the juncture looks weak, on the lower end, the index may drift down towards 17000-16950 over the short term. On the higher end, resistance is visible at 17500," said De.
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