Sensex, Nifty Crash 1.5% As Global Rate Hike Fears Mount

Indian equity benchmarks crashed on Monday, extending losses from the fag end of Friday and snapped a near five-week bull run as the safe-haven dollar-dominated global trades, as most central banks are poised to keep raising rates.

A modest easing by China only highlighted troubles in its property market, and hawkish signals from major central bank policymakers, even at the risk of an economic collapse, are hurting investor sentiment.

The 30-share BSE Sensex index tanked 872.28 points, or 1.46 per cent, to 58,773.87, and the broader NSE Nifty index ended 267.75 points or 1.51 per cent lower, at 17,495.70.

Selling pressure was across the board. Only two of the 30 scrips that are part of the benchmark Sensex closed in the positive.

“While correction was overdue for sometime after the recent upsurge, fresh concerns of a likely hawkish stance by the US Fed in its September meet and strengthening dollar index turned investors jittery and triggered a massive fall in banking, IT, metal & realty stocks," said Shrikant Chouhan, Head of Equity Research for Retail at Kotak Securities.

"Market sentiment could remain volatile in coming sessions as focus would shift back to global concerns of falling crude oil prices amid weakening demand, and US-China tussle over Taiwan," he added.

Reuters quoting analysts reported that after this month's significant increases in the Nifty 50 index of 4.6 per cent and the BSE Sensex of 4.7 per cent through August 18, investors booked profits.

With the Nifty Metal index down 3.2 per cent earlier in the day, metal stocks experienced their worst percentage decline since June 22. Tata Steel decreased 4.5 per cent.

The Nifty Bank index fell 1.8 per cent, led by falls of 2.8 per cent and 2.4 per cent for Punjab National Bank and Kotak Mahindra Bank, respectively.

Up until August 18, the bank index has increased 5.8 per cent this month.

As a result of the Paytm's shareholders' decision to re-appoint Vijay Shekhar Sharma as managing director and chief executive officer, despite calls from an investor advisory firm for his ouster, shares of One97 Communications, the parent company of fintech company Paytm, pared gains to end 0.5% higher.

The Nifty 50 index saw just five firms conclude the session higher.

From the Sensex pack, Tata Steel, Asian Paints, Larsen & Toubro, Wipro, UltraTech Cement, Bajaj Finance, Bajaj Finserv, Tech Mahindra, Kotak Mahindra Bank and Axis Bank were the major laggards.

On the other hand, ITC and Nestle India ended higher.

After announcing on Friday that it will acquire DB Power, the operator of thermal power plants, Adani Power Ltd's stock rose 5 per cent to a new all-time high of Rs 432.80 per share.

Capital inflows provided some assistance to the Indian financial markets.

Until August 19, foreign institutional investors (FIIs) invested $5.6 billion into Indian shares, up from $618 million in July, according to data.

Global shares slipped on Monday, and the dollar extended its climb as concerns about the US interest rate outlook reduced risk appetite, with the odds of a 75 basis points rate hike by the Federal Reserve climbing to almost 50 per cent.

Investors eye Federal Reserve Chair Jerome Powell's speech which headlines a host of policymakers at Jackson Hole later in the week, and the risks are that he will not meet investor hopes for a dovish pivot on policy.

Major European markets were down, and the STOXX index of the 600 largest stocks fell by 0.97 per cent as investors feared hawkish signals from policymakers at the European Central Bank (ECB).

According to Bundesbank President Joachim Nagel, rates at the ECB must continue to rise even though a recession in Germany is becoming more probable because inflation will continue to be uncomfortably high through 2023.

Concern that a three-day suspension of European gas supply later this month may exacerbate an energy crisis caused the euro to briefly fall back below parity against a strong dollar on Monday and to wallow at five-week lows.

However, China stands out as an exception to the tightening trend, as the Chinese central bank cut key lending rates on Monday by 5 to 15 basis points to stabilise a faltering economy and a pressured property market.

The yuan fell to a 23-month low as concern over China's economy weighed on stocks in the region.
MSCI's largest index of Asia-Pacific shares outside of Japan decreased by 0.9 per cent, despite gains of 0.7 per cent by Chinese blue chips.

Japan's Nikkei declined 0.5 per cent, and South Korea's KOSPI lost 1.2 per cent, despite being helped by the recent dramatic yen reversal.

With S&P 500 futures down 1 per cent and Nasdaq futures down 1.35 per cent, it appeared that US markets would continue their downward trend.

The S&P 500 ended the previous week down 1.2 per cent and has consistently failed to break through its 200-day moving average near 4,320.

The US dollar has strengthened as the most liquid of safe havens, rising to 108.44 against a basket of currencies due to the prevailing atmosphere of global concern. It experienced its greatest performance since April 2020 last week, rising 2.3 per cent.

"The USD can track above 110.00 this week if the August flash PMIs for the major economies show a further slowing in economic growth or contraction in activity," Joseph Capurso, head of international economics at CBA, told Reuters referring to surveys of manufacturing due on Tuesday.

"We also expect Powell to deliver a hawkish message about inflation, in line with recent comments from other Fed officials supporting the USD," he added.

Oil prices were also under pressure, amid worries about global demand and the high dollar, as well as consultations between the United States and the European Union on Iran's response to the latest nuclear pact proposal. 

Brent was down $1.64 at $95.1, while US crude lost $1.77 to $89.45 per barrel.