Benchmark indices fell on Thursday as uncertainty over the US economic outlook and unwinding of carry trades weighed on global investor sentiment. The Reserve Bank of India’s (RBI) decision to keep interest rates steady and its concerns about high food inflation led to profit booking.
The S&P BSE Sensex closed 582 points, or 0.7 per cent, lower at 78,886. The National Stock Exchange’s Nifty closed 181 points, or 0.7 per cent, lower at 24,117.
During the previous session, markets snapped a three-day losing streak following encouraging comments from US and Japanese central bank officials. However, fears of a US recession have resurfaced, with some financial institutions raising the likelihood of such an event as investors worry that the Federal Reserve (Fed) has been slow to react to signs of a weakening US economy.
JPMorgan Chase & Co on Thursday raised its forecast of a recession in the U.S. to 35 percent, up from 25 percent a month earlier. The revision by the bank follows a similar adjustment by Goldman Sachs, which now sees a 25 percent chance of a recession next year.
Meanwhile, the RBI did not change the interest rate for the ninth consecutive meeting. Governor Shaktikanta Das said that since the share of food inflation in consumption is 46 percent, the Monetary Policy Committee cannot ignore its pressures.
Foreign portfolio investors are selling stocks due to US recession concerns, the reversal effect of the carry trade, and high valuations in domestic equities.
Carry trade strategies, which involve borrowing at low rates to invest in higher-yielding assets in other markets, have been hit by a larger-than-expected rate hike by the Bank of Japan last week.
Vinod Nair, Head of Research at Geojit Financial Services, said, “The RBI’s decision to maintain its current policy along with a cautious upward revision in the consumer price index and a moderate growth forecast for the first quarter caused the domestic market to reverse its earlier gains. Meanwhile, global markets are focused on US jobs data, and concerns about a deeper recession have raised fears that the US economy is heading towards a recession, potentially forcing the Fed to cut rates faster than initially expected.”
Looking ahead, the actions of central banks in developed nations will dictate the direction of the market.
Ajit Mishra, Senior Vice President (Research), Religare Broking said, “Market participants are turning cautious due to global uncertainty and relief is hard to come by in the short term. Nifty is facing resistance around 24,350 and a decisive break below 23,900 could lead to further declines. Traders are advised to adjust their positions with a hedged strategy to deal with the current volatility.”
The market was weak, with 2,159 stocks rising and 1,759 declining. The biggest Sensex loser was Infosys, which fell 2.8 per cent, followed by Reliance Industries, which fell 1.2 per cent.
(with inputs from agencies)
first published: August 08, 2024 | 8:19 PM First
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“Markets decline after 1-day gain; Sensex and Nifty drop 0.7%”
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Benchmark indices fell on Thursday as uncertainty over the US economic outlook and unwinding of carry trades weighed on global investor sentiment. The Reserve Bank of India’s (RBI) decision to keep interest rates steady and its concerns about high food inflation led to profit booking.
The S&P BSE Sensex closed 582 points, or 0.7 per cent, lower at 78,886. The National Stock Exchange’s Nifty closed 181 points, or 0.7 per cent, lower at 24,117.
During the previous session, markets snapped a three-day losing streak following encouraging comments from US and Japanese central bank officials. However, fears of a US recession have resurfaced, with some financial institutions raising the likelihood of such an event as investors worry that the Federal Reserve (Fed) has been slow to react to signs of a weakening US economy.
JPMorgan Chase & Co on Thursday raised its forecast of a recession in the U.S. to 35 percent, up from 25 percent a month earlier. The revision by the bank follows a similar adjustment by Goldman Sachs, which now sees a 25 percent chance of a recession next year.
Meanwhile, the RBI did not change the interest rate for the ninth consecutive meeting. Governor Shaktikanta Das said that since the share of food inflation in consumption is 46 percent, the Monetary Policy Committee cannot ignore its pressures.
Foreign portfolio investors are selling stocks due to US recession concerns, the reversal effect of the carry trade, and high valuations in domestic equities.
Carry trade strategies, which involve borrowing at low rates to invest in higher-yielding assets in other markets, have been hit by a larger-than-expected rate hike by the Bank of Japan last week.
Vinod Nair, Head of Research at Geojit Financial Services, said, “The RBI’s decision to maintain its current policy along with a cautious upward revision in the consumer price index and a moderate growth forecast for the first quarter caused the domestic market to reverse its earlier gains. Meanwhile, global markets are focused on US jobs data, and concerns about a deeper recession have raised fears that the US economy is heading towards a recession, potentially forcing the Fed to cut rates faster than initially expected.”
Looking ahead, the actions of central banks in developed nations will dictate the direction of the market.
Ajit Mishra, Senior Vice President (Research), Religare Broking said, “Market participants are turning cautious due to global uncertainty and relief is hard to come by in the short term. Nifty is facing resistance around 24,350 and a decisive break below 23,900 could lead to further declines. Traders are advised to adjust their positions with a hedged strategy to deal with the current volatility.”
The market was weak, with 2,159 stocks rising and 1,759 declining. The biggest Sensex loser was Infosys, which fell 2.8 per cent, followed by Reliance Industries, which fell 1.2 per cent.
The article was first published on August 8, 2024, at 8:19 PM IST.
