Sensex falls 443 points on Fed rate hike jitters

MUMBAI: The Sensex fell 443.71 points, or 1.54 per cent, on Monday over fears that the US Federal Reserve may hike rates. It was the sharpest fall for the Bombay

MUMBAI: The Sensex fell 443.71 points, or 1.54 per cent, on Monday over fears that the US Federal Reserve may hike rates. It was the sharpest fall for the Bombay Stock Exchange (BSE) benchmark index since the 604.51-point drop in June owing to Brexit.

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A hike in interest rates in the US will prompt foreign investors to pull out of emerging markets such as India, and invest in the dollar as returns from the greenback would be higher and more stable.

Monday’s fall on the bourses was also attributed to investor nervousness after Germany, one of Europe’s strongest economies, reported a 2.6% drop in its June exports, triggering a selloff by institutional investors who rushed to the safer havens of the dollar.

The broader Nifty index also closed 1.7% down at 8,716 points.

Other than Infosys, which was up 1.7%, the 30-share Sensex witnessed blood bath as most large stocks, including SBI, L&T, Tata Motors, were in the red.

Other Asian and even European stocks declined. Key indices in Asia such as China, Hong Kong, Japan, South Korea and Taiwan fell by 1.18 per cent to 3.36 per cent. European indices in France, Germany and the UK fell by upto 2 per cent.

The rupee also weakened by 24 paise to 66.92 against the US dollar. Tracking a global sell-off, domestic equities fell nearly 2% on Monday, posting their biggest single-day decline since the Brexit vote on June 24, on renewed talks that the US Federal Reserve might raise interest rates as early as next week.

The Sensex ended at 28,353.54, showing a fall of 443.71 points, or 1.54%. The NSE Nifty fell 151.10 points, or 1.70% to 8,715.60, also the biggest since June 24.

Apprehension of further tightening of norms for foreign investors and high valuations for Indian stocks are likely to affect investor sentiment in the coming days, experts said.

“There are Fed presidents who are airing the view (of a rate hike) in consonance with the chair Janet Yellen,” said Dhananjay Sinha, research head, Emkay Global. “This moves the opinion closer to a September hike.”

Tata Steel was the biggest loser among Sensex stocks ( down 5.30%), followed by Adani Ports (down 4.37%) and SBI (down 4.28%). Among banks, SBI fell 2.6%, PNB declined 2.6% and ICICI Bank dropped 3.3%.

A European brokerage head said there is already the view that Indian stocks have run up in valuations in the past three months. “So a 3% to 5% correction is further expected and all the factors are adding up to that view.”

Kotak Securities’ Sanjeev Zarbade recently said that Indian markets were at least 25% up and that it would be difficult to sustain such high prices.

Shreyash Devalkar, fund manager at BNP Paribas Mutual Fund, said that key benchmark indices were in a bear-grip. “Spooked by the prospects of an “earlier than expected” interest rate hike and global nervousness following a nuclear test by North Korea, indices across the globe registered sharp losses.”