Skittish bulls are scrambling for cover.
On Monday, the benchmark Sensex sank by 1023.63 points, tumbling below the 58000 threshold and sending an eddy of fear through the stock markets which have been spooked by the prospect of an imminent interest rate increase in the US and the surge in crude oil prices.
The bellwether indices clocked their worst show in two weeks as relentless selling by foreign portfolio investors compounded the misery for the market ahead of a three-day meeting of the Reserve Bank of India (RBI), which is under pressure to announce measures to soothe concerns over the US Federal Reserve’s taper plans and rising inflation.
The Sensex plummeted almost 1346 points at one stage during a torrid day of trading. The broader Nifty 50 fell 302.70 points, or 1.73 per cent, to close at 17213.60.
The market has been nervously trying to second guess the RBI policymakers’ moves amid mounting speculation that they could raise the reverse repo rate by 20 to 25 basis points, which could push up short-term interest rates.
The reverse repo — currently ruling at 3.35 per cent —is the rate at which banks park their surplus money with the RBI.
The central bank is not expected to tinker with the policy repo rate which is currently at 4 per cent. This means that there isn’t likely to be any impact on home and auto loans. Some pundits, however, believe that a rate hike could come in April if inflation remains elevated.
A lot will depend on how crude oil prices behave. On Monday, Brent crude was quoted at $92.87 per barrel with some experts suggesting that it could soon cross $100 a barrel — a level that hasn’t been seen in seven years.
India is clearly worried by the surge in oil prices. Rameshwar Teli, minister of state for petroleum and natural gas, said in the Rajya Sabha that the government had urged crude oil producing nations and the Organisation of Petroleum Exporting Countries (Opec) to ensure reasonable prices. India imports almost 85 per cent of its crude oil requirements and is watching these developments closely.
Interest rates
The big fear is over the rise in the US interest rates and the havoc that this could trigger in global markets with a possible exodus of money from emerging markets like India.
Recently, the Bank of England raised its bank rate for the second consecutive occasion to 0.50 per cent. While other central banks are also expected to follow suit in the coming weeks or months, their actions may not bode good news to asset classes like equities since the cost of money will go up. One of the main reasons that saw stocks hitting record levels last year was that liquidity was available at dirt cheap rates.
Market observers say corporate earnings in the October-December quarter have been fairly mixed — and this has been another reason for the market’s volatility.
Provisional data showed that the FPIs sold stocks worth Rs 1,157 crore in today’s trade. Since the beginning of this calendar year, they have dumped shares worth Rs 42,082 crore.
With Monday’s fall, stocks have retreated after the brief, post-Budget rally, and investors have started to worry about their positions and the returns for the year.
“The domestic market has been witnessing heavy selling pressure post the Budget as the focus shifted back to interest rate, inflation, bond yields, and surging crude oil prices. It is important for the market to sustain above the 17000 levels to witness some stability. The RBI policy meet will be an important event to watch out for,” said Siddhartha Khemka, head — retail research, Motilal Oswal Financial Services.
Meanwhile, gold price in the national capital on Monday jumped Rs 146 to Rs 47,997 per 10 grams in line with rally in global precious metal prices. Silver also gained Rs 635 to Rs 61,391 per kg.
