Rate hikes and the consequent sharp gains in the US dollar did not go down well with equity investors as the domestic market ended with losses on May 6.
As reported by Reuters, the US dollar hit 20-year highs and world stocks fell to their lowest in over a year on May 6 as markets anticipated more US interest rate rises.
The rise in crude oil prices and the rupee's fall also weighed on the mood of the market. Crude benchmark Brent Crude traded near $115 a barrel mark while the rupee fell 66 paise to close at 76.92 against the US dollar on May 6.
As inflation is soaring and expected to remain elevated, an interest rate hike of 25-50 basis points was long overdue, but the sharp upward revision of rates by the US Fed, Bank of England and RBI have dealt a blow to market sentiment.
The Bank of England on May 5 raised its key interest rate by a quarter-point to one which is the highest level in 13 years. This was after the US Fed lifted rates by 50 bps, the highest in 22 years, while the RBI raised rates by 40 bps on May 4.
Sensex opened 774 points lower at 54,928.29 and ended 867 points, or 1.56 percent, lower at 54,835.58. Nifty ended the day at 16,411.25, down 271 points, or 1.63 percent. BSE Midcap and Smallcap indices closed with losses of 2.06 percent and 2.10 percent, respectively.
If we exclude the flatish close of May 5, the market has been falling since April 29 ahead of the US Fed outcome. RBI's rate hike came as a surprise which further dampened the mood as in its April policy meet, the RBI had said that it will hike rates gradually.
For the week, Sensex and Nifty fell 4 percent while the mid and smallcap indices suffered losses of more than 5 percent each.
The overall market capitalisation of BSE-listed firms dropped to ₹255.2 lakh crore from ₹267 lakh crore on last Friday, April 29, making investors poorer by ₹11.8 lakh crore in a week.
The sentiment continues to remain fragile due to the ongoing Ukraine war, supply chain challenges, persistent inflationary pressures, rising bond yields, and the expectations of aggressive rate hikes by the US Fed and RBI, all of which can start weighing on economic activity and earnings momentum.
In the 30-share pack Sensex, only six stocks - Tech Mahindra (up 2.21 percent), Power Grid (up 1.88 percent), ITC (up 1.83 percent), SBI (up 0.92 percent), NTPC (up 0.60 percent) and Sun Pharma (up 0.54 percent) - ended in the green on May 6.
Among the laggards, Bajaj Finance (down 4.91 percent), Axis Bank (down 4.11 percent), Bajaj Finserv (down 3.49 percent), Nestle (down 3.34 percent) and Wipro (down 3.12 percent) were at the front.
"A steep crash in the US stocks as the market evaluated the need for a higher rate hike to tame elevated inflation levels wounded global markets with heavy selling. The Bank of England while raising its interest rates, warned about a possible risk of recession, aggravating investor fears. This period of volatility is the time for smart money to look for opportunities with buy-in-dip as the strategy with a focus on sectors that are expected to be least impacted by inflation and yield rise," said Vinod Nair, Head of Research at Geojit Financial Services.
Ajit Mishra, VP - Research, Religare Broking, pointed out that the market will react to Reliance numbers in early trade on Monday, May 9 and then focus would shift to the global cues.
"The increasing fear of aggressive rate hikes from the US Fed has spooked investors across the globe including India. On the index front, the Nifty has tested the crucial support zone of 16,400 and indications are in the favour of prevailing decline to continue with some intermediate pause/rebound. In case of any rebound, the 16,650-16,800 zone would act as a hurdle. Participants should align their positions accordingly and use rebound to create shorts," said Mishra.
Disclaimer: The views and recommendations made above are those of individual analysts and not of MintGenie.