Equities came under pressure and the Sensex shed 139 points on Thursday after the US Fed raised interest rates and struck a hawkish stance, souring appetite for emerging market assets. The sentiment was further dented after official data showed wholesale inflation shot up to a 14-month high of 4.43 per cent in May, while the current account deficit (CAD) jumped over three times to $ 48.7 billion, or 1.9 per cent of the GDP, in FY18.
The Sensex saw a slightly better start and advanced to a high of 35,749.88, but soon turned lower in line with a weak trend at other Asian markets. It finally finished 139.34 points, or 0.39 per cent, lower at 35,599.82. The gauge had risen by 295.49 points in the past three sessions. Likewise, the broader NSE Nifty dropped by 48.65 points, or 0.45 per cent to 10,808.05 after shuttling between 10,773.55 and 10,833.70.
The rupee, however, withstood the headwinds of CAD worries and a hawkish Federal Reserve rate hike to close higher by 3 paise at 67.62 against the US currency.
On the US Federal Reserve move to increase the policy rates by 25 bps for the second time in 2018, Gaurav Dua, head of research, Sharekhan, “This is on expected lines. But the commentary has a hawkish undertone and the central bank has indicated a total of four rate hikes in 2018 against expectation of three earlier, citing ‘Solid’ economic activity, low unemployment rate and inflation likely to overshoot their earlier projected target.
“We expect the change in commentary by US Federal Reserve and relatively faster pace of unwinding to have limited impact on emerging market equities as the hike in interest rates remain gradual and the estimates for terminal Fed rates remains unchanged at neutral level of 2.9 per cent,” Dua said.
V K Sharma, Head Private Client Group, HDFC Securities, said, “though the 0.25 per cent rate hike by the US Fed was a highly telegraphed event, the possibilities of two more rate hikes this year took their toll on the markets.
Vinod Nair, head of research, Geojit Financial Services, said, “the second hike of 25 bps by the US Fed was in line with expectations but the language indicated two more hikes during the latter half of the year, which dented market’s sentiment. Additionally, domestic WPI increased to 4.43 per cent in May while CAD surged to 1.9 per cent of GDP.”
Sectorally, BSE IT index fell the most at 1.40 per cent, followed by teck 1.32 per cent, PSU 1.05 per cent, consumer durables 0.89 per cent, capital goods 0.81 per cent, oil and gas 0.69 per cent, infrastructure 0.65 per cent, power 0.63 per cent and bankex 0.48 per cent. Healthcare rose 1.47 per cent and auto 0.05 per cent. The broader markets depicted a mixed trend, with the mid-cap index shedding 0.08 per cent and the small-cap inching up 0.07 per cent.