Equity benchmarks fell on Wednesday, stalling a two-day winning streak, tracking a sea of red in Asian bourses following a deep sell-off in Wall Street stocks as investors braced for the US Federal Reserve’s aggressive rate hike later in the day.
“Domestic equities are likely to retreat in early Wednesday trade, in tandem with weakness seen across the Asian markets after US indices overnight faltered ahead of the Fed meeting,” said Prashanth Tapse, Senior Vice President for Research at Mehta Equities, ahead of the opening bell.
“Markets are likely to trade in choppy waters intra-day, as traders look forward to the keenly awaited US Fed policy meeting outcome on interest rates,” he added.
The 30-share BSE Sensex index fell 227.93 points to 59,491.81, and the broader NSE Nifty-50 index declined 55.05 points to 17,761.20.
“The overarching trend in the market now is India’s outperformance vis-a-vis other markets, particularly the mother market US. The big question is whether this outperformance can sustain. This is possible since the Indian economy and corporate earnings are outperforming,” V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, told ANI.
However, the risk is the high valuation of Indian stocks, Mr Vijayakumar said.
“If there is a sharp cut in the US market on recession fears triggered by sharp rate hikes or if the Ukraine war escalates, as some fear now, the Indian market too will be impacted,” he added.
Stocks in Asia sank following a fall in shares on Wall Street, which pushed the S&P 500 down over 1 per cent overnight, even as futures indicated a slightly higher open on Wednesday.
The risk from a steep Fed rate hike had markets on the edge, with futures pricing in a 81 per cent likelihood of another 75-basis-point increase and a 19 per cent likelihood of a full percentage point increase.
Markets are “seemingly well positioned for a 75bps hike alongside a hawkish update” from the Fed, Taylor Nugent, a Markets Economist at National Australia Bank in Sydney, wrote in a client note.
“The post meeting commentary and the updated dots will be key,” said Mr Nugent, adding that the NAB was looking for a policy rate of “something like 4 per cent” at the end of this year with no rate cuts expected until 2024.