Fears of a recession in major global economies were rekindled after the US Federal Reserve came out with a hawkish statement that signalled further rate hikes which sent world stock markets skidding and saw the Sensex tumble more than 878 points on Thursday.
The 30-share gauge crashed 878.88 points, or 1.40 per cent, to end at 61799.03 after tanking more than 962 points earlier during the session to a low of 61715.61. On the NSE, the broader Nifty plummeted 245.40 points, or 1.32 per cent, to end at 18414.90. On Wednesday, the US central bank in line with expectations raised interest rates 50 basis points to a range of 4.25- 4.50 per cent.
However, hawkish comments by Fed chair Jerome Powell signalled more rate hikes next year, with a reduction likely in 2024 only. On Thursday, both the European Central Bank and the Bank of England followed the Fed to raise rates by 50 basis points.
“We continue to anticipate that ongoing increases will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 per cent over time,” Powell said in a press conference after the announcement. “The historical record cautions strongly against prematurely loosening policy. We will stay the course, until the job is done.’’ His comments triggered a sell-off in global markets with the Dow Jones Industrial Average falling more than 1.42 per cent and the Nasdaq 0.76 per cent. In Asia, the markets ended lower in Seoul, Tokyo, Shanghai and Hong Kong. Stocks in Europe were trading in the red in the mid-session on Thursday.
“The Fed startled the markets by maintaining its hawkish tone, as investors were expecting a softer approach after the release of better-than-expected inflation numbers. IT stocks led the pessimism in the domestic market as recession fears grew in the global economies following the Fed’s comments,” Vinod Nair, head of research at Geojit Financial Services, said. Siddhar tha Khemka, head — retail research, Motilal Oswal Financial Services, feels equities were likely to remain in a narrow range because of weak global sentiments and the upcoming holiday season.
The benchmark indices recently hit record highs on strong flows from foreign portfolio investors (FPIs) and retail investors on the back of a good festival season and a resilient economy. However, concerns have grown that the valuations have become expensive at least in some sectors. Powell’s comments put pressure on the rupee which settled at 82.76 against the dollar — a fall of 31 paise from the previous close.
The dollar turned stronger on Thursday as reflected in the dollar index which was trading nearly 0.56 per cent higher at 104.35. The RBI will issue two tranches of Sovereign Gold Bonds, which will open for subscription from December 19-23 and March 6-10, 2023.
