Market Today: Equity benchmark indices extended losses in intra-day deals on Friday as investors took a cautious stance amid uncertainity over the US Fed rate cut timing, and start of Q4 earnings season.
The S&P BSE Sensex was down 600 points at 74,400 levels. The NSE Nifty 50 dipped below the 22,600 mark.
Tata Steel, Bharti Airtel, Tata Motors, HCL Tech, led the gains on the Sensex, while leading private banks such as HDFC Bank, Axis Bank, IndusInd Bank, ICICI Bank and Ultratech Cement among others led losses.
On the other hand, Hindalco Industries, Tata Steel, Mahindra and Mahindra were among top gainers on NSE Nifty 50 while Bajaj Auto and Sun Pharma were among the top losers.
The broader markets opened flattish with both the BSE MidCap and SmallCap indices gaining 0.03 and 0.13 per cent respectively.
In sectoral trends on NSE, Nifty Healthcare, Nifty Pharma, Nifty Banks and Nifty Fin Services led losses while Nifty Realty, Nifty PSU Bank and Nifty Auto experienced gains.
Here are the key factors behind the fall in Sensex, Nifty today:
1) Pressure from FPIs
The single biggest worry for foreign investors at the moment could be the inking of a protocol to amend the India-Mauritius tax treaty after which FPIs could face greater scrutiny.
The amendment specifically states that relief under the treaty cannot be for the indirect benefit of residents of another country. In almost all cases, the shareholders or investors in Mauritius entities making investments in India are from other countries.
Mauritius is the fourth-largest source of FDI in India and owns about 6% of total FPI assets in the country.
2) US inflation
A hotter-than-expected inflation data in the US has dampened hopes that the Federal Reserve would begin cutting interest rates as early as June. Wall Street traders now expect that there are 23% chance of Fed cutting rates in June, down from roughly 62% chance a week ago.
Fed minutes out on Wednesday also showed that officials had begun worrying that inflation progress might have stalled before the March inflation data, with some raising the possibility that the current policy rate was not restrictive enough.
3) Bond yields
The hotter-than-expected US inflation has spiked the US bond yields. The two-year US yield, the closest indicator of rate expectations, topped 5% for the first time since November. The 10-year yield hit a five-month high. Higher yields are negative for FPI inflows but analysts suggest that dips may get bought as domestic liquidity remains high.
Expert View: V K Vijayakumar, Geojit Financial
The hotter-than-expected US inflation has spiked the US bond yields. This is negative for FPI inflows but is unlikely to impact the Indian market which is resilient, and the rally is driven mainly by domestic liquidity. Dips are likely to get bought imparting strength to the market. Therefore, investors may use the dips to buy high quality largecaps where the margin of safety is high.
Global Cues
Asian equities remained subdued on Friday as investors contemplated the Federal Reserve’s stance on interest rate cuts amidst uncertain U.S. inflation trends. Expectations now lean towards less than two quarter-point reductions in the Fed funds rate this year, a decrease from the three cuts projected by Fed officials previously.
Japan stood out positively in the Asia Pacific region, with the Nikkei 225 climbing by 0.5%. Tech stocks led the surge, buoyed by gains in U.S. markets. Meanwhile, South Korea’s KOSPI fell by 0.39% and Singapore’s Straits Times Index by 0.12%. Both countries’ central banks maintained their current policies. Hong Kong experienced the most substantial decline, with the Hang Seng dropping by 1.31% due to pressure from property shares. On the other hand, mainland China’s blue chips remained stable.
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