PALAK SHAH | Mumbai, May 12 | Updated on: May 12, 2022

Fears of dollar liquidity being sucked out by the Fed through interest rate hikes pulling markets down

Fears of dollar liquidity being sucked out by the US Federal Reserve (Fed) through aggressive interest rate hikes is pushing stock markets down. Despite a more than two per cent fall in Sensex and Nifty on Thursday, and a nearly 15 per cent crash in both the indices from their lifetime-highs in January this year, experts believe the markets are set for further downside. On Thursday, Sensex fell 1,158 points to close at 52,930 and Nifty was down 359 points at 15,808. Still, the bad news around the world was that the cryptocurrency crash had erased more than $200 billion in a single day on Thursday.

The low-interest rate regime by the Fed and global central banks was a key theme, which was driving one of the longest and most historic bull runs over the past two years. But the hotter-than-expected inflation figures in the US and elsewhere around the world have put stock markets in a spot. Inflation in the US was recorded at a 40-year high on Wednesday at 8.3 per cent. In India, the inflation rose to an eight-year high of 7.9 per cent.

FPIs exit, DIIs enter

As per exchange data, foreign portfolio investors (FPIs) sold stocks worth ₹5,255 crore on Thursday in the equity cash segment, taking the total selling for the month in the segment to nearly ₹29,000 crore. Domestic institutional investors (DIIs) were net purchasers of stock worth ₹4,815 crore.

“Lot of positions seem to be out of the system. Most new-age stocks are just one-fourth of their peak value. Better quality, old-economy stocks too are down by 30-60 per cent. But nothing in earnings suggests there should be a major revision to earnings of these stocks. So far, markets seem to have factored in the Fed hike. I would be surprised to see Nifty break 15,500. Earnings have not disappointed,” said Rahul Arora, CEO, Institutional Equities, Nirmal Bang Equities.

Wall Street down

In the US, the tech-heavy Nasdaq 100 index was down 27 per cent for the year, while the Dow Jones and S&P 500 indices fell around 15 per cent from their peak.

“Significant decline in Chinese Covid cases and US bond trading below 3 per cent may give some relief to global equities. Technically, Nifty is trying to defend and hold 15,800. There is support also at 15,697. Any short covering and a close above 16,000 for Nifty could take the index to 16,600,” said Prashanth Tapse, Vice-President (Research), Mehta Equities Ltd.

Published on May 12, 2022