Markets deteriorate as investors spook hawkish central banks

The benchmarks declined on Friday as the market sell-off intensified on the back of weak global signals. Investors became cautious amid a hawkish central bank and a surprise rate hike by the Bank of England on Thursday. Adding to the volatility, the health ministry said on Friday that daily cases of Covid-19 had seen a sharp rise in some areas of the country, while the number of Omicron reached 101. The India Vix – a measure of market fear – rose 2.7% to levels 16.33. The overall advance/decrease ratio turned negative mainly as only 993 shares rose and 2353 shares declined in the Bahrain Stock Exchange.

Constant selling from foreign institutional investors continued to hurt sentiment on the street. Banks and financial institutions are among the top sectors where investors have scaled back their exposure. Data from the stock exchanges showed that foreign investors sold a net worth of Rs 1,468.71 crore in Indian stock markets on Thursday.

The 30-share BSE Sensex index closed down 889.40 points or 1.54% at 57,011.74 with a drop of 25 in the index. Similarly, Nifty fell 263.2 points, or 1.53%, at 16,985.20. IndusInd Bank was the biggest loser in Sensex, down 4.8%, followed by Kotak Mahindra Bank, HUL, Titan Company and HDFC. On the other hand, Infosys, HCL Tech, Power Grid Corp and Sun Pharma were among the gainers on Friday.

Negative global signals, continued FII selling, absence of any positive catalyst, and increased Omicron cases are likely to continue to pressure the market. Hence, traders are advised to maintain their negative market bias for the next few days,” said Siddhartha Kimka, Head of Retail Research, Motilal Oswal Financial Services. On the sector front, except for IT, all other sectors saw selling pressure from investors on Friday. As The broader BSE medium and small cap index is down more than 2% each on the day.

The Bank of England (BoE) became the first major global central bank to raise interest rates on Thursday amid rising inflation. The Bank of England raised the interest rate from a record low of 0.1% to 0.25%. Earlier this week, the US Federal Reserve also hinted at three rate hikes in 2022 to allay inflation fears. Analysts said measures to normalize liquidity around the world will further guide the markets.

Hemant Kanwala, Head of Equity at Kotak Mahindra Life Insurance, said: “The US Federal Reserve’s hawkish stance and tough schedule to reduce asset purchases as well as raise interest rates will shape the near-term trajectory of markets, rupee and rupee global flows. Liquidity has returned to normal in the US and the expected normalization of monetary policy in India in due course, we expect stock prices to remain under pressure.”