Sensex takes 305-pt hit on P-Note concerns, US Fed’s hawkish stance

From Sensex, Adani Ports and Special Economic Zone emerged as the biggest loser by plunging 6.14 per cent to Rs 171.85 after Moody's revised the outlook to 'negative' from 'stable'.

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The 50-share NSE Nifty also dropped by 40.60 points or 0.51 per cent to 7,829.55.

Led by banking stocks, the Sensex crashed by 305 points to hit a 2-week low of 25,399.72 after worries over stricter participatory notes (P-Notes) norms and a likely June rate hike by the US Fed spooked investors.

Posting losses for the sixth straight session, the rupee also plummeted by 39 paise to hit an over 2-month low of 67.36 per dollar on persistent demand for the American currency. The commodity markets were also hit with Brent crude oil falling up to 2.7 per cent. The election results in states did not impact the sentiment.

After a good start at the outset, the Sensex slipped into the red and touched a low of 25,351.99 before winding up 304.89 points or 1.19 per cent down at 25,399.72, its weakest closing since May 6. The 50-issue NSE cracked below the 7,800-mark by falling 86.75 points or 1.10 per cent. With public banks coming out with weak Q4 numbers, SBI lost 4 per cent, PNB 2.82 per cent and Bank of Baroda 3.93 per cent.

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Market regulator Sebi made it mandatory all end-users of these overseas instruments to follow anti-money laundering law in India and asked their issuers to report any suspected breach immediately. Acting upon recommendations of the Supreme Court-appointed Special Investigation Team on black money, Sebi tightened the due diligence requirements for issuance and transfer of controversy-ridden P-Notes and put the onus on investors to ensure the AML compliance.

According to Credit Suisse, the minutes of the April 26-27 FOMC meeting supported a growing realisation in the market that the Fed may hike rates in 2016 after all. Some Fed officials apparently were motivated to remind market participants that the Fed intends to continue normalising policy with gradual rate hikes, with the next move coming before year-end. Analysts worry that a US rate hike would lead to more FII outflows.

On the impact of election results, Motilal Oswal, chairman & MD, MOFSL, said: “BJP has won only Assam. If we were to count on pan-India sentiments, these results do not bring out anything meaningful as the equation at the centre does not change. However one big positive is that the people of all the states have given clear majority to one party of their choice.”

Vinod Nair, head of research, Geojit BNP Paribas, said: “The market slipped on hawkish US FOMC minutes which increased the probability of a US Fed rate hike in June. The recent rise in US inflation is also strengthening the rate hike possibility which has tempted the investors to book profit.”