Fed’s hawkish tone spooks equity, forex markets, Sensex slips 879 points, rupee slides 27 paise

Fed startled market by maintaining hawkish tone; investors were expecting a softer approach after the release of better-than-expected inflation numbers, says an analyst

Benchmark equity indices fell by about 1.3% and the rupee weakened by 27 paise against the U.S. dollar on Thursday following a ‘hawkish tone’ adopted by the U.S. Federal Reserve the previous day when it raised interest rates, analysts said.

The S&P BSE Sensex slumped 879 points. or 1.4%. to 61,799.03 points. The Sensex stocks which lost the most include TechMahindra (3.98%), Infosys (2.59%), Titan (2.57%), HDFC (2.07%) and ITC (1.87%). The NSE Nifty 50 index too fell 245.40 points, or 1.32%, to 18,414.90 points.

“The Fed has startled the market by maintaining its hawkish tone, as investors were expecting a softer approach after the release of better-than-expected inflation numbers,” said Vinod Nair, head of Research at Geojit Financial.

“IT stocks led to pessimism in the domestic market as recession fears grew in the global economies following the Fed’s comments. The market now awaits the BOE and ECB decisions, which are likely to follow a half-point hike,” he said.

The rupee also came under pressure, sliding 27 paise to 82.76 against the dollar.

Anindya Banerjee, vice-president, Currency Derivatives & Interest Rate Derivatives at Kotak Securities Ltd., said, “Rupee continues to remain one of the weakest currencies as demand for dollars remain strong in the onshore market and lack of exporter selling and carry trades, keep supply low”.

“A hawkish Fed also helped the U.S. dollar. Over the near term we expect a range of 82.25 and 83.00 on spot,” he said.