NEW DELHI: Domestic equity market closed in the red on Thursday as the US Federal Reserve minutes suggested one more rate hike may be necessary in the current cycle to curb inflation and Chinese macroeconomic data showed that the world’s second-largest economy is slowing faster than forecasts.
The 30-share BSE index Sensex ended at 65,151.02 down 388.40 points or down 0.59% while the Nifty also closed at 19,365.25 level, down 99.75 points or 0.51%.
“Profit-taking came to the fore amid weak global cues, as rising US bond yields and fall in the currency levels weighed on the equity market sentiment. Investors are also worried about further rate hikes coupled with deflation and slowing demand in China, which has been prompting investors to flee equity markets amid choppy trends,” said Shrikant Chouhan, Head of Research (Retail), Kotak Securities.
The US Federal Reserve’s July minutes noted that as inflation remained well above the Committee’s longer-run goal and the labour market remained tight, most participants continued to see significant upside risks to inflation, which could require “further tightening of monetary policy”. In India, the RBI is also expected to turn more hawkish following a sharp jump in India’s July retail inflation.
Amid these developments, government bond yields in the US and India are on the rise. Indian government bond yields surged on Thursday with the benchmark 7.26% 2033 bond yield ending at 7.2487%, its highest since April 5. To note, whenever bond yields go up the opportunity cost of investing in equities goes up and therefore equities become less attractive.
“The mounting influence of weak global cues hindered the domestic market’s ability to recoup, resulting in sustained selling pressure,” said Vinod Nair, Head of Research at Geojit Financial Services. He added that the escalation of US bond yields is expected to limit the influx of foreign investments into the Indian market, further impacting market dynamics.
Foreign portfolio investors pulled out over Rs 1,500 crore (net) from the Indian equity market on Thursday as rupee closed an all-time low of 83.10 (provisional) against the dollar. In the Sensex pack, ITC, Power Grid, L&T, Reliance Industries, Nestle, and Kotak Bank fell most on Thursday, while Titan, SBI, Bajaj Finserv, Axis Bank, and Sun Pharma closed with gains.