After four days of consecutive losses, benchmark stock indices rose in Thursday’s morning session as soft comment from US Fed Chairman Jerome Powell boosted sentiment, but the rally was short-lived. Gains quickly dissipated, around 1:50 PM, the BSE Sensex fell 800 points around the 51,700 level, while the NSE Nifty slipped near the 15,400 level.
The Federal Reserve announced its most aggressive rate hike in nearly 30 years, raising benchmark interest rates by 0.75 percentage points on Wednesday in its battle against rising inflation. The Fed’s policy-making Federal Open Market Committee reaffirmed that it “remains strongly committed to bringing inflation back to its 2 percent target” and expects it to continue to raise key rates.
Sentiments soon turned, however, and benchmark indices fell from the day’s highs to trading in the red.
Why is the stock market falling?
dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said: “Beyond the expected 75 basis point Fed rate hike, the Fed chief’s comments and guidance have temporarily calmed the markets. Jay Powel’s comment that “we have the tools and determination to achieve price stability” reflects confidence in controlling inflation. His advice of a 3.4 percent rate by the end of 2022 and a 3.8 percent rate by 2023 reflects his determination to fight inflation. However, the currently unknown factor is whether rising interest rates will send the US economy into recession.”
Also, the Fed’s plan has begun to shrink its balance sheet by nearly $9 trillion, with the central bank allowing bonds to mature from its balance sheet without replacement.
Data showed that foreign investors have sold shares so far this calendar for an amount of Rs 19,2104 crore. This includes Rs 24,949 crore in shares that FPIs have sold so far in June. At its May 4 meeting, the Fed had raised short-term interest rates by 50 basis points. The increase followed a 25 basis point increase in March 2022.
Experts said the Fed’s balancing act will have a negative impact on global markets.
What should investors do now?
“Investors can adopt a prudent investment strategy without making aggressive bets. Look to the long term and use the dips in the market to slowly build high quality, reasonably priced stocks such as leading banks, leading IT, pharmaceuticals and select cars,” said Vijayakumar.
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