It was freaky Friday on Dalal Street. The Indian equities on Friday witnessed a dramatic crash as Sensex lost nearly 700 points as investors resorted to profit booking, tracking weak cues from Asian peers amid fears of a potential US government shutdown. The market sentiment remained fragile after the US Federal Reserve's hiked interest rate on Wednesday.
The equity market witnessed selling ahead of the weekend, with Sensex slumped 689 points or 1.89 per cent to close at 35,742, while Nifty closed 197 points lower at 10,754. Of 30 Sensex stocks, 27 ended in the red. All BSE sectoral indices ended in the red, with IT and Teck shares were at the receiving end.
Here are 5 reasons that led to the carnage on Dalal Street:
US Fed Rate Hike
The US Federal Reserve on Wednesday raised its key interest rate for the fourth time this year, a move that triggered negativity in the market. The Federal Open Market Committee (FOMC) raised its benchmark interest rate by a 25-point to 2.5 percent, marking ninth increase since it began normalizing rates in December 2015, despite pressure from President Donald Trump to leave rates unchanged. However, the FOMC lowered its projections for future hikes to two next year, down from three rate raises previously projected.
Hefty selling across IT and Teck space
Information Technology stocks were the hardest hit in Friday's selloff amid concerns about ongoing trade tension between US and China and rising rupee. According to ICRA, the appreciation in the rupee is aggravating the troubles of the Indian IT sector, which is already hit by a change in the market landscape and compressing revenue growth.
Profit booking after rally
Investors resorted to profit booking after a strong rally in the last two weeks on back of stronger rupee and falling crude prices, ahead of expiry of December series due next weeks.
Concerns over global economic slowdown
The traders are also worried that the Indian equities might get infected by a global slowdown, as indicated in the monetary policy committee meeting. According to the minutes of the MPC's December meeting, global economic activity has shown increasing signs of weakness on rising trade tensions. The committee assessed that economic activity decelerated in major emerging market economies in the third quarter due to weaker demand and ongoing geo-political trade tensions.
Among advanced economies, equity markets in the US witnessed a selloff on the weakening outlook for corporate earnings caused by rising borrowing costs, while the European stock markets declined on political uncertainties. The Japanese stock market also shed gains on global cues and the gradual strengthening of the yen. EM stock markets have corrected on shrinking global liquidity, weak economic data in some key EMEs, and lingering trade tensions.
MPC concerns about inflation
All six members of the monetary policy committee have raised concerns about retail inflation, especially about the medium-term outlook of food inflation and oil prices. All the members stated that food deflation was a surprising development, which made headline retail inflation undershoot previous RBI forecasts, according to report published in Mint. In the recently concluded RBI policy meeting, RBI has projected inflation at 2.7-3.2 per cent in H2:2018-19 and 3.8-4.2 per cent in H1:2019-20, with risks tilted to the upside.
Edited by Chitranjan Kumar