Indian markets closed sharply lower on Friday amid weak global signals as aggressive rate hikes by central banks around the world continued to raise fears of an economic slowdown.
The Sensex and Nifty closed down 1.56% and 1.63%, trailing their global peers, on worries about economic growth due to rising inflation, said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services Ltd. , as well as continued sales by foreign institutional investors, added to the pressure, Khemka added.
“The single major factor unsettling global equity markets is the reemergence of inflation as a major threat and market skepticism about central banks’ ability to contain inflation without triggering a sharp economic downturn,” he said. VK Vijayakumar, Chief Investment Strategist at Geojit. Financial services.
Asian indices such as Taiwan, Shanghai Composite and Hang Seng all ended down 1.72-3.81%. Only Jakarta Composite and Nikkei were able to manage gains of 0.45% to 0.69%.
After rate hikes by the Reserve Bank of India and the US Fed, hawkish comments and a negative economic growth outlook from the Bank of England spooked global markets. Global markets fell 2-3% after interest rates rose to curb rising inflation, hurting economic growth, Khemka said. The Bank of England raised interest rates to their highest since 2009 to 1% on Thursday.
Investors fear that interest rate hikes will have a negative impact on emerging markets.
“A hawkish narrative from the Fed and rising global inflation will force central banks to persist in normalizing monetary policies. As a result, a higher cost of capital will somewhat dilute earnings momentum in emerging economies like l India, where the impact of rising input costs and rising interest rates will likely be most palpable in the second quarter of FY23,” said Niyati Khandelwal, Head of Sales and Trading. institutional stocks, Yes Securities.
Selling by FIIs is expected to accelerate as bond yields in the United States begin to offer better yields at higher credit ratings, which will eventually weaken the Indian financial market, said Vinit Bolinjkar, head of the research at Ventura Securities Ltd.
FIIs remain net sellers, having sold ₹1.34 trillion shares in 2022, through May 5. A weaker rupee does not bode well for their yields either.
Bond yields also rose 7.40% on Thursday. Edelweiss Asset Management had said bond market participants expect RBI to quickly raise the repo rate to 5.15%, a pre-pandemic level, and aim to complete the process of policy rate normalization. He said the repo rate will get there by December.
Rising crude prices add to inflation concerns as Brent crude hit $114 a barrel on Friday. Notably, Brent had softened to nearly $101 a barrel in the last week of April. Oil prices are rising on lingering worries about tight global supplies, experts said.
Market selling intensified further on Friday as rising crude oil prices reignited fears that inflation could pose a major challenge ahead, said Amol Athawale, assistant vice president for technical research. , Kotak Securities Ltd.
“Furthermore, a strict lockdown in China has severely affected global supply chains and also remains a major market concern. Asian stocks fell on concerns over the hit to growth from China’s zero covid policy. China,” said Deepak Jasani, head of retail research at HDFC Securities. The U.S. dollar hit 20-year highs and global stocks fell to their lowest in more than a year on Friday, as markets expected further U.S. interest rate hikes, he added.