Benchmark indices edged lower on Thursday as uncertainty over the US economic outlook and the unwinding of carry trades weighed on global investor sentiment. The Reserve Bank of India’s (RBI’s) decision to hold interest rates steady and its concerns about high food inflation led to profit-taking.
The S&P BSE Sensex ended the session at 78,886, a decline of 582 points, or 0.7 per cent. The National Stock Exchange Nifty closed at 24,117, down 181 points, or 0.7 per cent.
During the previous session, the markets had snapped a three-day losing streak following encouraging comments from US and Japanese central bank officials. However, fears of a US recession resurfaced, with some financial institutions increasing the likelihood of such an event as investors worried that the Federal Reserve (Fed) has been slow to respond to signs of a weakening US economy.
JPMorgan Chase & Co raised the odds of a US recession to 35 per cent on Thursday, up from 25 per cent a month ago. This revision by a bank follows a similar adjustment by Goldman Sachs, which now sees a 25 per cent probability of a recession next year.
Meanwhile, the RBI kept rates unchanged for the ninth consecutive meeting. Governor Shaktikanta Das noted that, with food inflation comprising 46 per cent of the consumption basket, the monetary policy committee could not ignore its pressures.
Concerns about a US recession, the impact of the reversal of carry trades, and high valuations in domestic equities have led foreign portfolio investors to sell off stocks.
Carry trade strategies, which involve borrowing at low rates to invest in higher-yielding assets in other markets, have been affected by the Bank of Japan’s larger-than-expected rate hike last week.
“The domestic market reversed its earlier gains as the RBI’s decision to maintain its current policy, coupled with a cautionary upward revision of the Consumer Price Index and a moderated growth forecast for the first quarter, took effect. Meanwhile, global markets are focused on US jobs data, and concerns about a deeper slowdown have heightened fears that the US economy is heading for a recession, potentially forcing the Fed to cut rates faster than initially expected,” said Vinod Nair, head of research at Geojit Financial Services.
Looking ahead, central bank actions in the developed world will guide the market’s trajectory.
“The ongoing global uncertainty is making market participants cautious, and short-term relief seems unlikely. The Nifty is facing resistance around the 24,350 mark, and a decisive break below 23,900 could lead to further declines. Traders are advised to adjust their positions with a hedged strategy to navigate the current volatility,” said Ajit Mishra, senior vice-president of research at Religare Broking.
The market breadth was weak, with 2,159 stocks advancing and 1,759 declining. Infosys, which dropped 2.8 per cent, was the biggest contributor to the Sensex’s decline, followed by Reliance Industries, which fell 1.2 per cent.
(With inputs from agencies)
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