Sensex nosedives; Tata Motors, ICICI down
Indian stock markets are trading steeply low after news that the US Federal Reserve is planning to increase interest rates in December with Asian markets also reacting sharply down to the development.business Updated: Oct 13, 2016 13:38 IST
Indian stock markets are trading steeply low after news that the US Federal Reserve is planning to increase interest rates in December with Asian markets also reacting sharply down to the development.
The 30-share sensex at the BSE was down 351 points or 1.2%, while the NSE’s Nifty is down 110 points or by 1.27% at 1:00 PM.
The fall in BSE was across the board, from Tata Motors (down 4.1%), ICICI Bank (down 3.4%) to Sun Pharma (down 2%) to Coal India (down 1.5%), all stocks were trading sharply low. TCS, which will announce its second quarter earnings later today, was trading 1.6% down on what many analysts expect could be a slow quarter.
The fall in stocks was triggered by weakness in Asian markets that were reacting to reports of the Federal Reserve’s minutes of a meeting last month, which showed that the recent decision by the US central bank to hold status quo, was a close one and that a majority of the Fed’s governors were of the view that a hike in interest rates was warranted.
“The Fed minutes show what everyone has known for 8 weeks: officials want to get on with normalization ‘soon’. If not November, a hike looks assured by December,” said a Deutsche Bank report. “The labor market is strong, the housing market is strong, consumption is strong. Inflation and wage growth have accelerated significantly over the past year. At 2.3%, core CPI (retail) inflation now stands three ticks above the Fed’s 2% target,” the report added.
A rise in US interest rates will result in foreign funds pulling out of emerging markets like India and invest in the strengthening dollar. This would also put a pressure on the Indian currency.
Fears of a US rate hike in December coupled with the concerns of a rate cut in India in February to further depress sentiments. Bank of America Merril Lynch said that a final 25 basis point repo rate cut would be possible on February 7, “given that real policy rates are already 50 bps negative. December looks unlikely as banks will find it difficult to transmit in the busy industrial season.”