The Indian equity benchmark indices finished Friday's trade lower, dragged by IT stocks along with worries over the Chinese economy. During their latest meeting, Federal Reserve officials expressed concerns about pace of inflation and indicated more rate hikes in the future.
This rate hike concern has resulted in a sell-off in IT stocks as the U.S. is the key market for the majority of Indian IT firms, accounting for 50–70% of their revenues. The Nifty IT index during Friday's trade fell 1.47%, settling at 30,604.
Shares of Tech Mahindra, Mphasis, and TCS experienced a 2% decline, while Infosys, Coforge, Wipro, and L&T Technology Services dipped by 1–1.7%. Overall, all 10 Nifty IT constituents ended Friday's session in the negative territory.
Concurrently, concerns regarding the real estate crisis in China weighed on markets. As per recent media reports, embattled developer China Evergrande Group filed for bankruptcy protection in a U.S. court as part of one of the world's biggest debt restructuring exercises. This amplified concerns about China's property crisis and its economic slowdown.
Worries over China's economy, along with expectations of further U.S. Federal Reserve rate hikes, bolstered demand for safer assets, supporting the U.S. dollar's fifth consecutive week of strength.
The dollar has gained 0.50% in the current week so far, adding to a cumulative 3% increase over the past four weeks. The Indian rupee, on the other hand, managed a slight recovery from its all-time low of 83.44 against the USD, currently trading at 83.06.
On Friday, the Nifty 50 and S&P BSE Sensex slipped by 0.28% and 0.31%, respectively. The Nifty 50 experienced a 0.61% dip during this week, continuing its bearish trend for the past three weeks. This four-week losing streak was last witnessed in April–May 2022.
Similarly, the Sensex witnessed a 0.57% fall this week, extending its four-week decline. Zooming out, both the Nifty 50 and Sensex dropped by 2.25% and 2.37% in August, marking the second-largest monthly fall since January.
Meanwhile, foreign inflows moderated in the first half of August to the lowest since the end of February.
“Concerns regarding inflation and shifts in investor preferences towards safer assets dampened overall market sentiment for domestic equities. Fears of a Fed rate hike, coupled with a decline in global equities, exerted additional downward pressure, specifically on IT stocks. Higher US bond yields and default risk in China are poised to prompt FIIs to adopt a more prudent stance when considering investments in emerging markets,” said Vinod Nair, Head of Research at Geojit Financial Services.
On the technical front, Rupak De, Senior Technical analyst at LKP Securities, said, "The index has consistently remained below its 21-day Exponential Moving Average (EMA), a sign that underscores the prevalence of a bearish trend. On the lower end, support is placed at 19250. A fall below 19250, may trigger a correction towards 19000 and lower. On the higher end, resistance was placed at 19500."
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