Markets Crash Nearly 4% In Four Sessions As FIIs Exit On US Rate Hike Concerns

The Indian equity benchmarks have crashed nearly four per cent in the last four trading sessions as foreign investors (FIIs) sold shares worth Rs 8,046 crore in the Indian markets, data from NSDL showed. Expectations of rally in US Treasury yields amid concerns that the Federal Reserve will aggressively move to raise rates to control inflation led to outflow of money from Indian markets, analysts said. 

Surge in US bond yields lead to outflow of money from emerging markets into US bond yields on hopes of steady and fixed return on capital employed, say analysts. 

“Currently, the uncertainty around the quantum of a rate hike by the US Fed is spooking markets the world over and participants expect clarity in the scheduled FOMC meeting outcome on January 26,” said Ajit Mishra, VP Research at Religare Broking. 

“Indian markets were trading at very high valuations and with fear of interest rate reversal concerns there are fears that liquidity will dry up and which is leading to fall in the Indian markets,” AK Prabhakar, head of research at IDBI Capital told Outlook India. 

The Markets started 2022 on a strong note with the Sensex and Nifty rallying over 5 per cent in the first 11 trading sessions of the month with only two days of downward closing. Nifty during the course touched high of 18,300 and has tested low of 17,485 on Friday. 

Meanwhile, market participants are also closely watching out for developing political scenario in poll-bound states like Uttar Pradesh, Uttarakhand, Punjab, Manipur and Goa. 

“UP is very crucial for the government’s economic reform process as 80 parliamentary seats come from there… there is some sort of anti BJP vote consolidation happening in favour of Samajwadi Party, I don’t know if it will play out or not but if it does it will become very difficult for BJP to continue with the reform process and in the backdrop of Covid-19 government is already slow with the reform process,” Sanjay Sharma, an independent market analyst said. 

All eyes are now set on the upcoming Union Budget for the next financial year. Market participants expect a cut in income tax and government to announce measures that would support the nascent economic recovery in the backdrop of evolving Covid-19 scenario. 

“On the index front, 17,600-17,350 zone would be critical to hold for any meaningful recovery. Since the selling pressure is widespread and volatility is further adding to the difficulties, it’s prudent to restrict naked leveraged positions and prefer hedged trades,” Mishra advices traders.