MUMBAI: Thursday’s early morning rally in Indian equities post an expected 75-basis point interest rate hike by the US central bank fizzled out on fears of continued FII outflows, with the Fed expected to continue frontloading rate hikes to tame elevated energy and food prices. Both Nifty and Sensex hit fresh 52-week lows, signalling the probability of continued investor pain in the days ahead.
FIIs sold shares worth a provisional Rs 3,257.65 crore, dragging down both indices by around 2%. The Nifty swung a wild 508 points intraday before closing down 332 points at 15,360.6, a tad above its 52-week low of 15335.10. The Sensex fell by 1,046 points to 51,495.79, barely 70 points above its 52-week low. The dollar continued to trade above the 78-mark to the rupee, closing at 78.07.
Since markets began correcting from their record highs in October last year, FIIs have net sold shares worth Rs 2.34 lakh crore. DIIs, including mutual funds, have net purchased shares worth Rs 2.74 lakh crore over the same period, implying sales by high net worth investors or HNI category that directly invests into the markets.
The market mood and outlook were aptly summed up by Nilesh Shah, MD, Kotak Mahindra AMC, who said, “The rate hike was on expected lines, but the situation is so dynamic that the Fed will need all its skills and lots of luck to bring inflation down without destroying demand beyond what is necessary.
The Fed will have to be like a surgeon’s knife rather than a butcher’s knife. Amid so much uncertainty the only thing that’s certain is volatility.” Fear gauge India Vix jumped to a high of 28.13, before declining to 22.87, reflecting the day’s wild price swings. A reading above 20 signals greater uncertainty. The SGX Nifty traded on the Singapore Exchange much after Indian market closing traded 63 points lower at 15297.5 at press time.
Amit Gupta, VP & fund manager, ICICI Securities PMS, said that the persisting spectre of crude-induced inflation would mean the Fed would continue aggressive rate hikes over a very short time, spooking EMs like India.
“Until the frontloading continues, the uncertainty lasts,” Gupta said, adding that the intensity of FII selling could be gauged from a decline in the one-year forward price to earnings multiple of the Nifty from 23 times in October 2021 to 17.65 times currently, which was below the 10-year average at around 18 times.