Indians on Friday broke a five-day winning streak as foreign investors sold shares amid a weakening rupee against the dollar on concerns of the US Federal Reserve aggressively raising interest rates to pacify inflation. Shares fell.
Benchmark indices Nifty and Sensex fell 1.10% and 1.08%, respectively.
Siddharth Khemka, head of retail research, Motilal Oswal Financial Services Ltd, said sentiments weakened on concerns of the Fed increasing rates aggressively. The Nifty saw profit-booking on Friday due to a hike in interest rates and concerns over a weakening Indian rupee. He added.
The dollar index is gaining momentum, putting pressure on the rupee and prompting foreign portfolio investors (FPIs) to sell shares.
Having a net seller of more than 2.18 trillion worth of equities in the first six months of 2022, FPIs became net buyers in July and August. However, they were net sellers of Shares worth Rs 1,706 crore were launched on Thursday after being net buyers for nearly 13 sessions.
Vinod Nair, head of research, Geojit Financial Services, said FPIs turning net sellers have taken the bulls by surprise. The broad-based selloff seen among index heavyweights dragged the index down, with Nair saying “concerns about a hike in interest rates continue to weigh on the markets”.
Other Asian indices, such as the Nikkei Jakarta Composite, Shanghai Composite and Kospi, all corrected 0.04-0.6%. Only Hang Seng and Taiwan TAIEX were able to close slightly higher.
Some moderation in inflation seen in the US and India raised hopes of a possible reduction in rate hikes. Joseph Thomas, head of research at Emkay Wealth, said the new figures and still high levels of inflation indicate that a higher rate hike would be needed to bring inflation down. The dollar index is probably still set to go up. Market levels and action reflected the reaction to these events during the day. These factors may put some pressure on the markets with respect to the possibility of rate hikes.”
Experts have already become cautious after the huge rally in the indices. With a strong rally, market valuations were rising, and some profit-booking was expected.
Analyst at Jefferies India Pvt Ltd. Ltd. said in an August 9 note that they are not confident of the stability of the recent rally, although they noted lower inflation expectations and an improved US outlook on lower recession risks. He said the recent 15% rally in the Nifty has pushed the bond yield gap to an uncomfortable level.
The rupee is already under pressure due to the rise in the dollar index. The USD-INR spot ended 10 paise higher at 79.77. Anindya Banerjee, Vice President, Currency Derivatives and Interest Rate Derivatives, Kotak Securities Ltd. said that the weakness in the dollar index and weakness in the Chinese yuan is leading to the fall in the rupee.
catch all business News, market news, today’s fresh news events and breaking news Updates on Live Mint. download mint news app To get daily market updates.