Market Meltdown: Major Indices Plummet As Fed's Influence Takes Toll

Dear Trader –

Benchmark domestic indices faced sharp corrections and ended Thursday’s trading session in negative territory. The NSE Nifty Future tumbled 203.00 points, or 1.02 per cent, to 19,769.05, while the BSE Sensex plunged over 570.60 points, or 0.85%, to 66,230.24. The border indices as well as the sectoral indices ended in red. PSU Bank, Auto, Private Bank, and Realty stocks saw the highest corrections.

Last night, the US Federal Reserve didn't opt for an interest rate hike but projected one more 25-basis-point rate hike this year and 50 bps of rate cuts in 2024, versus 100 bps of 2024 cuts in June projections.

The market breadth was skewed in the favour of the bears. About 2,436 stocks declined, 1,230 gained, and 127 remained unchanged on the BSE.

Here are top 5 factors keeping bulls under check:-

1) Fed fear - Fed's signal to markets that higher interest rates are the new normal may have bearish implications.US Fed's decision to defer rate hike, although expected, may keep global markets on tenterhooks. Inflation in the US is still high and other economic parameters are still showing little signs of slowing down.US 10-year at 4.472 per cent and 2-year at 5.184 per cent does reflect the expectation that before year-end further rate hikes may be expected.

2) Bond yields - The yield on two-year US Treasury notes rose to a 17-year high of 5.1970%, while the 10-year yield jumped to 4.4310%, a new 16-year peak. Rising bond yields are negative for equity prices. Nasdaq ended 1.5% lower and other Asian markets like those of Japan and China also ended over 1% lower.

3) Dollar index - The dollar index, which measures the American currency against a basket of rivals, rose as high as 105.59 on Thursday, its strong.

4) Crude reality - Adding to the inflationary noise is rising crude oil prices. Analysts are projecting that oil rates could touch $100 a barrel mark soon. A stronger dollar typically makes commodities such as oil more expensive for buyers using other currencies. Rising US bond yields, stronger USD and elevated energy prices – all are ingredients for a bad recipe for Asian stocks.

5) FII selloff - After splurging money on Indian stocks for six consecutive months, FIIs have been on a selling spree in September. NSDL data shows that FIIs have been.net sellers to the tune of Rs 5,213 crore so far in the month.

FII and FPIs, on Thursday saw a net sales of Rs.3007.36 crore in the cash segment. A total of Rs.12139.94 crore was sales against a total purchase of Rs.9132.58 crore. Domestic institutional investors saw a net purchase of Rs.1158.14 crore in the cash segment. A total of Rs.6702.25 crore was sales against a total purchase of Rs.7860.39 crore.

Meanwhile, I believe that high-interest rates are not good for the markets. Both the yields and markets cannot stay at an elevated level for too long. Either one will break down. Given that Fed is resolute in its stand it could be the markets which break down first.

Technically, the important key resistances are placed in August Nifty future are at 19769 levels, which could offer for the market on the higher side. Sustainability above this zone would signal opens the door for a directional up move with immediate resistances seen at 19808 – 19880 levels. Immediate support is placed at 19676 – 19606 levels.

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