Benchmark indices edged lower on Thursday as the uncertain US economic outlook and the impact of the unwinding of carry trades weighed on global investor sentiment. The Reserve Bank of India’s (RBI) decision to hold interest rates steady and its concerns on high food inflation led to profit-taking.
The Sensex ended the session at 78,886, a decline of 582 points or 0.7 per cent. Nifty, meanwhile, ended the session at 24,117, a drop of 181 points or 0.7 per cent.
During the previous session, the markets had snapped their three-day losing streak following encouraging comments by US and Japan central bank officials. However, US recession fears resurfaced, with some financial institutions raising the odds for such an event with investors fretting that the Federal Reserve has been slow to respond to signs of weakening in the US economy.
JP Morgan Chase on Thursday raised the odds of the US economy slipping into a recession by 35 per cent compared to 25 per cent a month ago. The bank’s revised estimates follow a similar step by Goldman Sachs, which now sees a 25 per cent probability of recession next year.
Meanwhile, the RBI kept rates unchanged for a ninth straight meeting. Governor Shaktikanta Das said that with food inflation comprising 46 per cent of the consumption basket, the Monetary Policy Committee (MPC) could not ignore its pressures.
With concerns over a US recession, the impact of the reversal of carry trades, and high valuations in domestic equities, foreign portfolio investors (FPIs) have been on a selling spree.
Carry trade strategies, which involve borrowing at low rates to fund higher-yielding assets in other markets, have been impacted after the Bank of Japan announced a larger-than-expected hike last week.
“The domestic market reversed its earlier gains as the RBI’s decision to hold its current policy with a caution to revise upward the Consumer Price Index (CPI) and moderate the growth forecast for Q1. Meanwhile, the global market is focusing on US job data, and the probability of a deeper slowdown has raised concerns that the US economy is heading for a recession, forcing the Federal Reserve to cut rates faster than initially expected,” said Vinod Nair, Head of Research, Geojit Financial Services.
Going forward, central bank actions from the developed world will guide the market trajectory.
“The ongoing global uncertainty is making market participants cautious, and short-term relief seems unlikely. The Nifty is encountering resistance around the 24,350 mark, and a decisive break below 23,900 could lead to a further decline. Traders are advised to adjust their positions with a hedged strategy to navigate the current volatility,” said Ajit Mishra, SVP of research, Religare Broking.
The market breadth was weak, with 2,159 stocks advancing and 1,759 declining. Infosys, which dropped 2.8 per cent, was the biggest contributor to Sensex’s decline, followed by Reliance, which fell 1.2 per cent.
(With inputs from agencies)
First Published: Aug 08 2024 | 6:03 PM IST
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