Markets were lower on Thursday, tracking a slide in Asian peers after US Federal Reserve chairman Jerome Powell overnight said that the US central bank would raise interest rates more than previously anticipated, sapping the risk appetite. The Fed raised rates 75 basis points for the fourth time in a row, bringing the top of its target range to 4%, the highest level since 2008.
Overnight the US market also fell sharply after rising briefly after the Fed policy announcement where it signalled smaller rate increases ahead and noting that monetary policy acted with a lag. The markets took this as a dovish hint. But Chair Jerome Powell soured the mood by saying it was "very premature" to think about pausing and that the peak for rates would likely be higher than previously expected.
"The double-sided message keeps open the possibility the Fed may raise rates in smaller increments in the future, ending its sequence of three-quarters-of-a-percentage-point hikes as soon as December in favor of more tempered increases of perhaps half a percentage point, while also leaving policymakers room to continue pushing rates higher if inflation doesn't start to come down," said Anand Varadarajan, director, Asit C Mehta Financial Services Ltd.
The Sensex was trading moderately lower around 60,820, paring initial losses while Nifty held 18,050 levels, in mid-day trade.
“The Fed commentary after the expected 75bp rate hike, particularly Jay Powell’s remark that the terminal rate is likely to be higher than thought earlier, disappointed markets which resulted in a selloff in US markets. But it is important to note that when asked about moderating rate hikes he said, “that time is coming and it may come as soon as the next meeting or the one after that." So, it is possible that the markets can again bounce back since the economy continues to be strong and unemployment is at record lows indicating that a US recession is not imminent," said V K Vijayakumar,chief investment strategist at Geojit Financial Services.
“India’s outperformance is likely to continue since leading indicators like credit growth, capital expenditure and auto sales point to robust economic recovery," he added.
Institutional buying could also support Indian markets. “FPI buying of ₹12610 crores during the last 5 trading sessions can provide support to the market at lower levels. Large-cap banks, capital goods and the premium auto segment can be bought on declines," Vijayakumar of Geojit Financial Services said.
Girish Sodani, Head Equity Market at Swastika Investmart, said that the RBI is also expected to hike interest rates at its December meet but its impact could be also limited on stocks. “RBI is also going for rate hike but we seem impact on very shorter term, Market still stand on stronger phase and need to focus on stock specifics," he added.
Anand James, chief market strategist at Geojit Financial Services, said some distribution pattern was seen in Wednesday's trade at 18070/50 levels for Nifty. Nifty has support at 17960/17900 zone while next support levels stand 17760/17720.
On the Rupee
The rupee today edged lower to 82.85 against the US dollar as compared to previous close of 82.80.
“On the domestic front, the overnight global rout in financial markets is likely to haunt the rupee. So far its trading tad bit stronger from its all time low, helped by resumption in the FII inflows which brought about 11000 crores in merely two sessions of Nov, as the sentiments accross had improved. Well, the continuation of the same will depend on how RBI holds on to policy amid aggressive Fed. Today RBI will have its unscheduled MPC meeting, which is majorly expected to be a non-event and RBI Governor Das said a letter that will be sent to the government will not be made public after the Nov 3 special meeting because the bank does not have the authority to release it," said Amit Pabari, MD of CR Forex Advisors.
“Today we could see the RBI could intervene in the spot market to control volatility. Overall, we expect the USD-INR pair to trade higher in a range of 82.00 to 83.20 levels and a breakout on either side will determine further course," he added.