Home >News >India >Markets slip nearly 1% as Fed disappoints investors worldwide

Indian markets ended nearly 1% lower on Thursday in sync with other global peers after the US Federal Reserve's commentary disappointed investors worldwide expecting stronger outcome-linked forward guidance. The BSE Sensex ended at 38,979.85, down 323 points or 0.82%. The 50-share index Nifty was at 11,519.25, losing 85.30 points or 0.74%.

Stocks in major Asia-Pacific markets mostly declined as investors reacted to Federal Open Market Committee (FOMC) meeting outcome. Markets in Japan, Hong Kong and Korea were down around 1%. Overall, the MSCI Asia outside Japan index shed about 1%.

US Federal Reserve held interest rates near zero and signalled it would stay there for at least three years, vowing to delay tightening until the US gets back to maximum employment and 2% inflation. The US central bank “expects to maintain an accommodative stance" until those outcomes are achieved, it said in a statement Wednesday night following a two-day meeting that beefed up its description of future policy. The fresh guidance is the Fed’s first step in an evolving communication strategy, after it unveiled a new long-term policy framework last month to allow inflation to overshoot its 2% target after periods of under-performance.

“The markets reacted to the negative global cues. However the negativity may not last long though to rise materially from here it may need fresh positive triggers," Deepak Jasani, Head of Retail Research, HDFC Securities said.

Volatility in Indian markets with the India volatility index (VIX) rising 2.24% indicating increase in nervousness and anxiety among investors.

“The global markets fell after the Fed pledged to keep interest rates low for a long time but highlighted the uncertainty surrounding economic recovery. It further stopped short of offering further stimulus for the US economy which dented sentiments. The Bank of Japan (BOJ) also held on to its key interest rate and its asset purchases policy. It upgraded its assessment of Japan’s economy and said that the economy has started to pick up after a difficult period caused by the coronavirus pandemic. On the domestic front, weak global cues and rising border tensions between India-China, dragged the market," said Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services Ltd.

Ease in global interest rates augurs well for flow of foreign liquidity flowing into emerging markets, typically considered risky.

Due to loose monetary policy, foreign funds are getting invested into Indian equities despite concerns on steep valuations, weak macro economic growth and rising cases of covid-19 cases. In September so far, foreign institutional investors (FIIs) have pumped in $261.05 million in Indian shares after being net buyers of $6.09 billion last month. So far this year, FIIs have bought Indian shares worth $5.06 billion. In the absence of domestic institutional buying, FII money is critical to maintain buoyancy of stock markets.

(Bloomberg contributed to the story)

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