Sensex Falls Over Nearly 80 Points After US Fed’s ‘Higher For Longer’ Rates Policy

Indian equity benchmarks fell in early trade on Thursday, stalling a two-day rally as the sentiment turned sour overnight after the Federal Reserve projected ‘higher for longer’ interest rates even as expectations widely show US inflation has likely peaked and concerns from warning signs of a recession.

The BSE Sensex index fell 79.17 points to 62,598.74 in early trade, and the broader NSE Nifty index reflected a sea of red in global stock markets.

The Sensex pack’s main laggards included Tech Mahindra, Infosys, HCL Technologies, Tata Consultancy Services, Titan, and UltraTech Cement.

The winners included Mahindra & Mahindra, NTPC, State Bank of India, IndusInd Bank, and the group.

A rise in oil prices after after the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) predicted a recovery in demand in 2023, did not help Indian assets.

“With global equities in a sea of red, local equity benchmarks in all probability would see a weak opening on Thursday. The likely bearishness can be attributed to US Fed’s hawkish comments that indicated it will keep rates higher through next year and hold off on cuts until 2024,” said Prashanth Tapse, Senior VP for Research at Mehta Equities.

The rout in world equities began with a fall in shares on Wall Street overnight after Fed Chair Jerome Powell stated on Wednesday that the central bank will continue to raise interest rates in 2019.

“This is a very hawkish signal from the Fed: a substantially higher terminal rate than back in September that also has a real upside risk attached to it. The Fed essentially acknowledged at this meeting that inflation is likely to remain stickier than initially expected, necessitating a more restrictive policy stance, which will end up pushing the US economy in a recession in 2023,” noted analysts at TD Securities.

“The weakening in risk assets and the flattening of the curve suggest that recession fears may be the dominant driver of market price action,” they added.

Mr Powell argued that if the US central bank does not tighten its grip on inflation, a larger price will be paid, despite the economy teetering on the brink of a potential recession.

US Treasury yields remained depressed and the curve deeply inverted as traders continued to fret that tighter policy will trigger a recession.