Dow falls, Sensex takes hit

Mumbai: Indian equity markets slumped sharply on Friday as selling gained momentum in global stocks with Dow Jones index in US plunging 4.1 per cent and the S&P 500 sinking 3.7 per cent overnight. With risk averse foreign portfolio investors turning heavy sellers of equities throughout this week in anticipation of an interest rate hike in US, both the Nifty and Sensex posted their biggest weekly drop since August 2017.

The Sensex plunged 407.40 points or 1.18 per cent to close the day at 34,005.76 while the Nifty slipped 121.90 points or 1.15 per cent to end the day at 10,454.95. On a weekly basis, both the indices lost around three per cent each.  

Besides increasing the cost of borrowing for corporates, experts said that the prospects of an increase in interest rates by global central banks including US Federal Reserve would make debt instruments more attractive. This is likely to influence global investors asset allocation decisions towards riskier assets such as equities.

“Rising global rates are likely to impact the flow of funds to riskier assets like emerging markets,” said Karthikraj Lakshm-anan, senior fund manager, equities, BNP Paribas Mutual Fund.

“A second straight weekly decline in jobless claims in the US pointed to a strong job growth momentum in the economy, thus perpetuating fears of higher inflation and consequently faster rate hikes in the US. Additionally, the Bank of England (BoE) on Thursday said that it is likely to raise interest rates earlier and faster than previously expected to dampen the effects of a stronger global economy on UK inflation,” he added.

According to the provisional data released by the stock exchanges, foreign portfolio investors (FPI) sold shares worth Rs 1,351.70 crore.

“All major markets from Europe to Asia have all wiped off on an average 10 per cent of the market caps which, resembled the orchestrated fall similar to 2008 global meltdown,” said Jimeet Modi, founder and CEO, SAMCO Securities.

Drawing attention to India specific issues, he said the Reserve Bank of India (RBI) kept the rates unchanged in the current monetary policy and signalled a hawkish stance.

“The inflationary pressure is slowly building up and the expectation of further rise is a cause of worry. There is an inv-erse co-relation between interest rates and equities. High inflation and interest have the lethal combination to kill the bull market,” he added.