The possibility of the US Federal Reserve shooting all the cylinders scares the Indian markets



The benchmark indices fell for the second day in a row as US bond yields rose amid fears of a decline in the Federal Reserve’s $9 trillion balance sheet. Riskier assets were corrected after Fed Governor Lyle Brainard commented that the central bank will begin reducing the balance sheet “at a rapid pace” as soon as next month. Experts said the markets have not yet determined such a possibility.


The benchmark Sensex index ended the session at 59,610 points, down 566 points, or 0.9 percent.

On the other hand, Nifty ended the session at 17,807 – down 150 points, or 0.8 percent.


And further reports of new sanctions against Russia have crushed feelings. Investors were concerned that Russia’s increasing isolation from international trade would further disrupt commodity flows. The new sanctions include a possible US ban on investment in Russia and a European Union ban on coal imports.


Globally, central banks have prioritized tackling inflation after describing price hikes as a passing phenomenon last year. A combination of supply-side turmoil and geopolitical tensions have pushed up commodity prices.


Experts said investors are looking forward to the Fed’s meeting minutes, which are expected to give insight into the pace of interest rate hikes and the process of tapering off the Fed’s bond holdings, including the Reserve Bank of India (RBI) interest rate decision on Friday.


“Weaker global signals led to some weakness in the local market, as investor sentiment turned to caution after a more hawkish tone from the Federal Reserve. With this development, a sharp movement was seen in US 10-year bond yields, which exceeded 2.6 percent levels since The last meeting of the Monetary Policy Committee, several factors have changed, such as geopolitics, oil prices, commodities, bond yields and inflation expectations.Neraj Chadwar, head of quantitative equity research, Axis Securities, said, “Given the rise in commodity prices pushed inflation expectations to the higher side, the Bank’s position The Indian reserve remains crucial at this point.”



The US 10-year bond yield rose 2.63 percent – the highest level since March 14, 2019.


Overseas investors sold shares worth Rs 2,280 crore, while local institutions provided buying support worth Rs 623 crore.


Markets have rebounded more than 13 percent from their March lows. The sharp recovery came despite the shockwave caused by high oil prices.


“Indian stocks have held up remarkably despite higher oil prices, possibly due to a shift in current account financing to FDI, making the oil impact linear rather than non-linear, allowing greater flexibility in domestic policy, and lower oil intensity in total domestic product. , the supply of cheaper oil, positive domestic policies that enhance the government’s push to raise corporate profits, high relative real policy rates, a new profit cycle, structural domestic bid on equity, and the growing positivity of multinationals toward India, says Morgan Stanley.


The breadth of the market was positive, as 2142 shares rose and 1277 shares declined. A round of 183 stocks reached 52-week highs. Two-thirds of Sensex shares ended the session with losses. HDFC Bank and HDFC Bank decreased 3.5 and 3.3 percent, respectively. The HDFC twins were the worst performers in the stock index and the largest in terms of impact on the indices. The financial sector was the most declining, and its sectoral index decreased by 1.25 percent.


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