Investors encountered a challenging day on Dalal Street as both of the benchmark indices, namely the S&P BSE Sensex and NSE Nifty 50, underwent a sharp decline in the early trading hours.
Around 10:37 a.m., the Sensex witnessed a decline of more than 526 points or 0.79 per cent, reaching a level of 66,274.33. Simultaneously, the Nifty registered a drop of 144.85 points, bringing it to 19,756.55.
This marks the third consecutive session of decline for the benchmark indices, and this bearish sentiment extended to the broader markets, with all indices painted in red. In the preceding session, the Sensex plummeted by over 600 points at closing, while the Nifty experienced a drop of more than 200 points, erasing approximately Rs 2.3 lakh crore in market value.
While many market analysts had anticipated some degree of correction in the domestic markets following their record-breaking performance, the steeper downturn now raises the possibility of further consolidation.
Deven Mehata, a research analyst at Choice Broking, commented on the situation, stating, "The overall market sentiment hinges on Nifty maintaining levels within the range of 19,800 to 19,950."
Over the last five trading sessions, the Sensex has witnessed a decline exceeding 2 per cent, with the Nifty posting a decrease of 1.93 per cent. Given the prevailing trend, there exists a potential for additional consolidation in the domestic markets.
But what lies behind the deceleration in the benchmark indices following their remarkable run?
Several analysts have identified profit booking as a contributing factor to the recent decline in the Sensex and Nifty. Additionally, they have highlighted other factors, including heightened geopolitical tensions, rising crude oil prices, a resurgence in the US dollar, and profit booking, as potential reasons for this downturn.
Recent market sessions have been marked by increased volatility, and it appears that the policy decisions of the US Federal Reserve have further dampened the momentum on Dalal Street, particularly due to their impact on global markets.
Although the US Federal Reserve decided to maintain interest rates at their current levels, it adopted a more rigorous monetary policy stance to address concerns regarding inflation.
According to the updated quarterly projections released by the US central bank, there may still be another interest rate hike later this year, with rates peaking in the range of 5.50 per cent to 5.75 per cent.
This more stringent stance has reverberated across global stock markets, including India, where concerns about diminished foreign investments have emerged if the US Federal Reserve proceeds with another rate hike.
Jayden Ong, Senior Market Analyst, APAC at Vantage, weighed in, stating, "The Federal Reserve has once again chosen to keep the benchmark interest rates within the range of 5.25 per cent to 5.5 per cent. The dot plot chart indicates the Federal Reserve's inclination toward an additional 25-basis-point interest rate hike in 2023, with a bias toward maintaining higher interest rates throughout 2024."
He added, "This stance is notably more hawkish than previous indications, leading to an appreciative rally in the US dollar index, while exerting notable downward pressure on precious metals and risk assets within relative markets."
Ong concluded by saying, "As a result, it is expected that risk assets, including the US stock index, will remain under pressure. This, in turn, could have indirect repercussions on the Indian market."
Meanwhile, Naresh Tejwani of Abans Group commented, "The US Fed's decision to defer the rate hike, although expected... may keep global markets on tenterhooks."
He noted, "Inflation in the US is still high, and other economic parameters are showing little signs of a slowdown. With the US 10-year at 4.472 per cent and the 2-year at 5.184 per cent, it reflects the expectation that further rate hikes may be expected before year-end."
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