Global inflation, FPI outflow hits sentiment: Markets fall ahead of US Fed meet as tapering fears set in

US consumer prices rose last month at a rate (6.8 per cent) not seen in nearly 40 years, the US government reported Friday, underscoring how inflation threatens the world’s largest economy. The US Fed, which will hold its two-day meeting on December 14 and 15, is expected to taper its bond purchases more quickly and also begin to raise interest rates faster. Investors will be closely watching for the Fed’s new interest rate forecasts as a hike in the US central bank’s rate and tapering will trigger more outflows and strengthening of the dollar.

“Ahead of the release of domestic inflation data and key global central bank meetings, the benchmark indices dived into the negative zone digesting weak macroeconomic numbers and continued FPI selling. India’s Index of Industrial Production grew by 3.2 per cent in October which was lower than market expectations,” said Vinod Nair, head of research at Geojit Financial Services.

In view of the rising global inflation, the policy outcome of key central bank meetings, especially the US Fed and European Central Bank, will be keenly monitored by the markets to determine its trends, he said. Foreign investors sold Rs 2,743 crore on Monday, taking the total FPI outflows to Rs 18,978 crore in December.

The benchmark index opened higher, tracking firm global cues, but profit-taking at the higher levels trimmed all the gains and pushed the index further lower as the day progressed. “Markets are currently dealing with mixed cues. At one end, the encouraging updates on the new Covid variant have eased some pressure. However, caution ahead of the US Fed meet amid the inflation woes is keeping the participants on the edge. In the current scenario, it’s prudent to restrict leveraged positions and let the markets stabilise,” said Ajit Mishra, VP—Research, Religare Broking Ltd.