Sensex Falls Over 250 Points After US Fed Signals A Hawkish Bias

Indian equity benchmarks extended losses from the previous session to slump on Thursday after the US Federal Reserve hiked rates by 75 basis points (bps) for the fourth consecutive time and hinted at a higher peak in borrowing costs.

That paved the way for a protracted Fed tightening campaign which depressed bonds, boosted the dollar, and destroyed market expectations for a respite.

The NSE Nifty index fell 0.4 per cent but held just above the 18,000 level, and the BSE Sensex index declined 278 points to around 60,628 in early trade.

The Monetary Policy Committee (MPC) of the Reserve Bank of India will meet later in the day and is anticipated to debate how the bank would respond to the government after failing to achieve its inflation target for three consecutive quarters.

But according to Governor Shaktikanta Das, the RBI won’t immediately release the report’s specifics.

Adani Enterprises, Adani Wilmar, and Hero Motocorp are slated to release their quarterly results later in the day on the earnings front.

Investors initially applauded the Fed for indicating that the pace of hikes could moderate after raising interest rates by 75 basis points to 3.75-4.00 per cent and stressing that the policy had a lag time.

But Chair Jerome Powell dampened the euphoria by asserting that considering a pause was “extremely early” and that the peak in rates would probably be higher than anticipated.

“The Fed is now more comfortable with taking smaller rate increases for a longer period than delivering larger increases now,” Brian Daingerfield, an Analyst at NatWest Markets, told Reuters. “The tightening cycle is officially now a marathon, not a sprint.”

The equity markets didn’t want to hear “higher for longer,” and Wall Street stocks dropped sharply. S&P 500 and Nasdaq futures were down further early on Thursday, driving Asian bourses lower.

The fear higher interest rates were likely to grind the US economy into a recession was reflected in the Treasury yield curve, which was near its most inverted since the turn of the century.