Nifty, Sensex Recover From A Hiding In Previous Session, But Risks Remain

Indian equity benchmarks recover on Tuesday from a hiding in the previous session even as broader Asia bourses struggled to gain traction, with risks pointing to more downside.

The 30-share BSE Sensex index was up over 300 points and the broader NSE Nifty-50 index opened in the green.

In the previous session, both the benchmark indexes slumped sharply, by over 1 per cent, driven by a broad global risk-off bets.

The latest setback for investors in a difficult year for investors is Federal Reserve Chair Jerome Powell’s push back against market expectations for a turn to interest-rate decreases next year.

Asian markets fumbled on Tuesday driven by a decline in Hong Kong and muted sentiment as a result of the Fed’s commitment to an extended period of restrictive monetary policy to combat inflation.

By mid-morning, the MSCI’s broadest index of Asia-Pacific equities outside of Japan was down 0.4 per cent, while the Nikkei stock index in Japan increased by over 1 per cent, supported in part by renewed yen weakness.

“The markets are spooked because they are afraid that the Fed could create a hard landing — that they’ll raise rates into a recession and that will be really painful for the economy and for corporate profits,” Terri Spath, chief investment officer at Zuma Wealth LLC, said on Bloomberg Television

Minneapolis Fed President Neel Kashkari said sharp stock-market losses show investors have got the message that the US central bank is determined to contain inflation. “People now understand the seriousness of our commitment to getting inflation back down to 2 per cent,” he said.

Investors’ top worries, in addition to interest rates, centre on the state of the Chinese economy. The benchmark Shanghai Composite Index fell 0.4 per cent in the opening hours of trading.

US futures were volatile following a Wall Street stock market decline that started on Friday when Jerome Powell emphasised the Fed is willing to let the economy suffer in order to reduce pricing pressures.

“The markets focus for the next couple of weeks at least, will be the likely Fed action,” Manishi Raychaudhuri, head of APAC equity research at BNP Paribas, told Reuters

“Earlier, there was talk of a pivot of a possible cutting of interest rates by the Fed, maybe in 2023 second half or so, but that is now sort of falling by the wayside,” he said. “Higher for longer (interest rate) is possibly the kind of narrative that’s building up,” he added.