May 31, 2023

US Fed Commentary Spooks Stock Markets

By Ashwini Agarwal
First publised on 2022-01-27 08:13:09

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Stock markets crashed once again on Thursday in early trades due to the US Fed decision to raise interest rates from March and the hawkish stance adopted by the chairman Jerome Powell. The markets fear that if US interest rates are hiked, there will be huge outflows of foreign funds. Hence, the markets came under selling pressure.

The Sensex crashed 1400 points as foreign funds sold equities but recovered as Indian buyers propped it up by buying at lower levels. The Sensex recovered more than 400 points by 1 pm. But the overall sentiment is negative.

The other factors that are spooking the markets include mixed Q3 results, pre-budget jitters, rising crude prices and geopolitical tensions. Investors are not convinced about economic recovery and the poor results of auto major Maruti and other companies have further eroded confidence. Operators are also worried about what the budget holds in store, with income and wealth disparities grabbing headlines in recent days. Further, crude prices crossed the $90 mark today, raising fears of rise in pump fuel prices and further inflation in India. Lastly, the stand-off between Ukraine and Russia sees no signs of a cool-off and the Russian build up on the Ukraine border signals a possible invasion. The US and Nato forces are preparing for that eventuality.

All this is taking a huge toll on equity prices and creating a panic amongst investors. For an emerging market like India, such volatility in stock markets is not good for both the investors and companies hoping to raise capital through IPOs. It erodes investor confidence and makes for negative sentiments. The market is not expected to stabilize before the budget and investors are advised caution.