Gold Silver Reports — US Rate Hike Fears, Weak China Data Sink Markets — Renewed worries about rate hike in the US sent the financial markets tumbling on Thursday . Share indices slid 1.6% and the rupee weakened after minutes of the US Federal Reserve Open Market Committee’s latest policy meeting hinted at the possibility of monetary tightening later this year.Weak Chinese trade data for September also hurt market sentiment, fostering doubt about the health of the world’s second-largest economy . Foreign portfolio investors dumped shares worth Rs911 crore on Thursday, according to provisional data.
The Sensex fell 439 points to close at 27643.11, its lowest level since June 11. The Nifty slumped 135 points to close at 8573.35, its lowest level since August 26, breaking the psychologically crucial support of 8600.Thursday’s session marked the biggest one-day fall since September 29.
“Market momentum is getting stressed because of the (Fed) minutes, weak trade data from China and rich valuations,“ said Gautam Chhaochharia, head of India research at UBS.
The rupee lost over half a percent to the US dollar, its steepest fall in over three months, and closed at 66.94 per US dollar, down 0.6% from its previous close at 66.53 on Wednesday . It opened at 66.83 a dollar and touched a low of 66.96. The Reserve Bank of India was not seen intervening much in the market. Asian currencies, too, weakened as the greenback gained strength after minutes of the US Fed indicated a December rate hike was still on the cards.
The volatility index (VIX) -a measure of traders’ perception of near-term risks in the markets -surged 8% to 15.42, reversing a sixday decline, showing the undertone is nervous. The market breadth was negative, with 1,290 stocks falling, 349 stocks gaining and 57 remaining unchanged. The broad-based selling saw the Nifty Realty , Bank, Media and Metal indices each losing 2% or more. Top Nifty laggards included Idea Cellular, which fell 5% to `75.95; HDFC, which slipped 4% to `1,336.50; and Reliance Industries, which fell 3.4% to `1,058.50.
Market strategists said the sharp fall in reaction to the minutes indicates the markets are realising that the days of supportive monetary policies by central banks are coming to an end. “The ability of central banks to do more is limited.The US economic recovery is well underway and they have to act at some point of time. The risks were being ignored by the market but that assumption is getting questioned now a lot more. There is nothing new in the reasons for the market fall,“ said Sanjeev Prasad, senior executive director at Kotak Institutional Equities.
Chhaochharia of UBS said it is not the rate hike but the trajectory of future rate hikes that will be keenly watched. “If the view that interest rates will start going up becomes a base case view, then it would hurt market multiples but not one or two hikes,“ he said. — Neal Bhai Reports