A positive start was followed by a downward slide in the markets, which coincided with a decline in Asian peers and the futures of the US stock market. The US Federal Reserve raised interest rates by 75 basis points the day before this. The leading indices plunged 2% against this background, setting new 52-week lows. The S&P BSE Sensex fell 1,646 points from its high for the day to settle at 51,496, a decrease of 1,046 points from the previous session's close. A daytime low of 51,434 was reached.
Fed Rate Hike
To combat inflation, which reached a 40-year high of 8.6% in May 2022, the US central bank increased the fund's investment rate by 75 basis points, the largest rise since 1994. The bank also hinted at further rate increases if inflation continues to be high.
"Nifty witnessed a breakdown of the critical support level of 15700 as FIIs persisted with aggressive selling after a significant interest rate hike by the US Fed while it seems there was a lack of support from domestic institutional investors," said Santosh Meena, head of research at Swastika Investment Ltd. The market is concerned that inflation won't be brought under control anytime soon, while a tight monetary policy could lead to a recession.
Yash Gupta, an equity research analyst with Angel One Ltd., commented on how the rate hike will impact the Indian economy, saying: "We believe the reaction to fed increasing the quantum of a rate hike in quantum of 50 bps-75 bps. We predict that as the appeal of stock in emerging economies declines, emerging markets like India will underperform. The FED's decision will have an immediate impact on India.
Bank of England to Consider Rate Hike
On Thursday, the Bank of England might try to ignore its concerns about a significant slowdown in the economy and hike interest rates once more to combat inflation. Since becoming the first of the major central banks in the world to boost rates in response to the coronavirus outbreak in December, the BoE has already increased borrowing costs four times.
Oil on the Boil
Given the limited supply, oil prices remained high following the Federal Reserve's rate hike, which stoked concerns about the world's largest economy's slowing development. At the time this piece was being written, the price of international benchmark Brent crude futures was trading at $119 per barrel, up 0.3%, while the price of US crude oil increased by 0.4% to $115.8 per barrel. The ongoing conflict between Ukraine and Russia continues to drive up oil prices, which experts believe will continue to do so at least through the end of this year.
FII Selling Continues
Given the negative global market indications, the FIIs have continued to be net sellers for the ninth straight month. In addition to selling shares worth more than Rs 2.2 lakh crore in the preceding five consecutive months, they have already sold shares worth more than Rs 31,000 crore in the current month.
Though they are working hard to make up for the FII outflow by purchasing Rs 2.06 lakh crore of shares so far this year, DIIs have been able to keep the market on the lower side.
Nifty Technical Outlook
Motilal Oswal Financial Services Ltd.'s Chandan Taparia, vice president of equities 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.