Markets around the world suffered as hawkish remarks by Federal Reserve Governor Christopher Waller caused a rise in yields on US 10-year notes and the dollar index.
On January 17, the domestic equities benchmarks Sensex and Nifty fell roughly two percent on selling pressure. The significant decline was caused by a selloff in banking stocks, led by HDFC Bank.
Around 1.45 p.m., the Sensex was down 1,466.23 points, or 2.00%, at 71,662.54, while the Nifty was down 415.10 points, or 1.88%, at 21,617.20.
The general market breadth also favoured laggards, with around two equities falling for every one that rose. Approximately 1,042 shares increased, 2,159 fell, and 56 stayed constant.
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Here are some of the main elements that caused the meltdown:
1. Concerns about the delay in rate cutting
The enthusiasm was dampened as rate-cut prospects dwindled after US Federal Reserve governor Christopher Waller warned that a monetary policy shift may take longer than expected.
Following the hawkish statements, investors expect the US central bank to start decreasing interest rates in March, according to CME Group’s FedWatch tool.
2 Increase in US bond yields and the dollar index.
The statements also caused yields on US 10-year government notes to surge beyond 4%, and the dollar index to reach a month-high.
3. Weak global cues.
A hawkish Fed and a rate surge hurt market mood around the world, resulting in a widespread drop. The three US benchmarks finished lower after resuming trading on January 16 following a market holiday. The Dow Jones Industrial Average declined 0.6 percent, while the S&P 500 and NASDAQ 100 were also down.
Following suit, markets around Asia-Pacific battled with selling pressure. Benchmarks in Hong Kong, Australia, South Korea, and China were expected to close in the red.
4 HDFC Bank’s Q3 results stun investors.
HDFC Bank shares fell more than 7% as the lender’s December quarter earnings showed sustained pressure on net interest margins, despite meeting market expectations.
The company has the greatest weightage on the Nifty 50 (13.52 percent), therefore a selloff in the counter put pressure on the headline index.
To make matters worse, the selloff impacted other financial equities, with Kotak Mahindra Bank, ICICI Bank, and SBI plunging 2-4 percent. The Nifty Bank was likewise the worst-performing sectors index, falling around 4%.
5 Broad-based losses.
Except for information technology and capital goods, all sectors experienced price declines. Metal stocks also fell as the dollar index rose. The automobile, pharmaceutical, fast-moving consumer goods, and infrastructure sectors all suffered losses.
Weakness was also noticed in the whole market. The Nifty smallcap index plummeted 1 percent, while the midcap fell 0.7 percent.
Levels to Watch
Analysts at SBI Securities believe the correction could be a precursor of a prolonged period of consolidation throughout the results season.
“In the immediate term, support is seen at the 21,700-21,730 level following the gap-down open. If the Nifty fails to maintain above 21,700, it would fall further to the 21,550-21,510 range, according to the brokerage.
When buying, the index is expected to encounter resistance in the 22,000-22,030 level. The business noted that the uptrend will only restart after the Nifty has solidly surpassed 22,220-22,280 points.
Regardless, considering that the market’s rise has assessed valuations to be excessive, analysts see this correction as much-needed.
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