Business Tantra

NEW DELHI: US inflation hitting a 40-year high set the stage for aggressive Fed rate hikes in coming months, sending stocks from Wall Street to Dalal Street tumbling.

Following the January CPI print at 7.5 per cent, St Louis Fed President James Bullard became the first FOMC participant to call for a 50 basis points (bps) hike in March. He also batted for 100 bps in tightening by early July, implying an additional 50 bps in cumulative tightening at the May and June FOMC meetings.

Investors were baking in a higher US inflation print, but not a 100 bps rate hikes by July.

FPI favourites IT and financial stocks led Sensex losers. New-age stocks also took a beating.

At 11.7 am, the BSE Sensex was trading at 57,924.19, down 1,006 points or 1.7 per cent. The NSE Nifty50, meanwhile, stood at 17,308.50, down 297 points or 1.69 per cent.

“We expect equity markets to remain volatile globally. Given the uncertainties, the feel good factor post sentiment booster by RBI might not last long in Indian markets too. Thankfully, the strong inflows in the domestic market would support Indian equities,” said Gaurav Dua, Head – Capital Market Strategy, Sharekhan by BNP Paribas.

Rupee hit 75 a dollar mark, rising fears of further foreign outfows from equities, which stood at Rs 8,388 in February, and Rs 41,691 crore so far in 2022. Fear gauge VIX spiked 9.2 per cent to 19.35.

Infosys, Wipro, Tech Mahindra and HCL Tech were the worst four Sensex performers falling up to 3 per cent. HDFC fell 1.63 per cent to Rs 2,436 while Bajaj Finserv declined 1.55 per cent to Rs 16,134. Kotak Mahindra Bank, Bajaj Finance, ICICI Bank, M&M, TCS and UltraTech Cement declined over 1 per cent each.

Some analysts are not surprised with Bullard’s dramatic hawkish tone.

“Bullard’s comments focusing on the action before July are consistent with our view that the Fed will act rapidly in H1 2022 to raise rates before taking a pause later this year as inflation and growth slow,” Nomura said in a note.

The foreign brokerage sees a 50 bps rate hike in March, followed by three consecutive 25 bps hikes in May, June and July, a five-month pause, then 25 bp hikes in December 2022 and June and December 2023.

Shares of new-age company Zomato plunged 5.6 per cent to Rs 89.20. Another new-age stock PB Fintech declined 6.5 per cent to Rs 810.50. Nykaa shed 1.2 per cent to Rs 1,692. Paytm was down 1 per cent at 929.50.

Also weighing on the market sentiment was the fact that Berlin talks between Russia and Ukraine failed to yield a breakthrough, with the US asking its citizens to leave Ukraine ‘now’.