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Sensex Drops 1,000 pts, Nifty at 52-Week Low; Why is Market Falling Despite Dovish Fed?




Benchmark equity indices increased on Thursday morning after losing consecutive days for four days due to dovish remarks made by Jerome Powell, chairman of the US Federal Reserve. The rally, though, was brief. The BSE Sensex was down 800 points around 51,700 at about 1:50 pm on June 16, and the NSE Nifty was down near 15,400.

Benchmark equity indices increased on Thursday morning after losing consecutive days for four days due to dovish remarks made by Jerome Powell, chairman of the US Federal Reserve. The rally, though, was brief. The BSE Sensex was down 800 points around 51,700 at about 1:50 pm on June 16, and the NSE Nifty was down near 15,400.

Powell characterized the move made by US policymakers as "an extraordinarily significant one" and said he did not anticipate "moves of this size to be typical." Inflation must be reduced, according to Powell, who also noted that officials "have both the tools we need and the resolve it will take to restore price stability on behalf of American families."


According to Dr. VK Vijayakumar, chief investment strategist at Geojit Financial Services, "The Fed chairman comments and instructions have momentarily calmed the markets more so than the anticipated 75bp increase in the fed funds rate. The statement by Jay Powel that "we have the instruments and the determination to achieve price stability" "demonstrates faith in controlling inflation. His predictions of a 3.4% rate by the end of 2022 and a 3.8% terminal rate in 2023 reflect his commitment to fighting inflation. Whether the US economy will enter a recession as a result of the rising rates is currently an unknowable variable."


In addition, the Fed has started the process of reducing its roughly $9 trillion balance sheet by letting bonds mature off its balance sheet without replacing them.


According to data, foreign investors have liquidated stocks this calendar year to the tune of Rs 19,2104 crore. This includes the stock that FPIs have sold so far in June for Rs 24,949 crore. The Federal Reserve increased short-term interest rates by 50 basis points during its meeting on May 4. The rise came after a rise of 25 basis points in March 2022.


According to experts, the Fed's decision to reduce the size of its balance sheet will hurt international markets.

"In addition to raising interest rates to their highest level in 28 years, Powell made it very plain that the Fed has the means and the will to bring about price stability. The Fed's balance sheet is also being drastically shrunk. This has detrimental effects on equity markets all across the world. A relief rally probably won't go on for very long. A further obstacle in India is the ongoing FPI selling, Vijayakumar stated.


This week, Nomura said in a report that the Fed will likely need to raise rates even further into the restrictive range and that it anticipated a terminal rate of 3.75–4% by March 2023, followed by rate reductions in 2024. The brokerage anticipates that the balance sheet erosion will last until 2023.

Motilal Oswal Financial Services Ltd.'s Chandan Taparia, Vice President of Equity Derivatives and Technical, Broking & Distribution, stated: "Nifty opened with a gap up but failed to hold at higher levels and drifted lower. Daily, it has breached a crucial support level of 15,735 and is now under intense selling pressure. The India VIX is close to 22 zones, which means that volatility is likely to continue and that it needs to decrease for the market to be stable. We can now anticipate lower levels of 15,350 and 15,000 as long as it remains below the 15,500 zones, while resistance is found at the 15,735 and 15,888 zones. The fact that the market breadth is negative suggests that the bears are in control and up against higher levels of resistance.

The Bank Nifty opened with a gap up by the Nifty, but it was unable to hold at higher levels and fell. On a daily scale, it is producing a bearish engulfing candle, which indicates strong selling pressure, and it has violated the low of the previous three trading sessions. As long as it stays below 32,750 zones, we can now anticipate a move toward 32,000 zones, with 33,000 and 33,500 zones acting as resistance, Taparia continued.


What Should Investors Do Now?


Investors can adopt a conservative investment approach without making risky risks. Use market downturns to progressively build up high-quality, moderately priced stocks like leading banks, leading IT, pharma, and select autos. Vijayakumar advised taking a long-term perspective.


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