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Domestic markets snapped a two-day gaining streak after the 5-year US Treasury yields topped 3 per cent following US Federal Reserve Chairman Jerome Powell’s comments that a 50-basis-point rate hike could be on the cards in May.
The benchmark Sensex declined 714 points, or 1.2 per cent, to end at 57,197. The Nifty ended at 17,172, with a drop of 220 points, or 1.2 per cent. Following an intensely volatile week, the Sensex and Nifty ended the week with a decline of 2 per cent and 1.7 per cent, respectively.
The yield on the 5-year treasury rose 2 bps to 3.003 per cent, the 10-year treasury note rose 1.5 bps to 2.932 per cent, and the 30-year note was at 2.949 per cent. Experts said the “yield curve inversion” – yield on the shorter-dated bonds being higher than the long-dated bonds – was a sign of a lack of confidence in the growth outlook.
Powell spoke at an International Monetary Fund (IMF) panel on Thursday in Washington that he shared with European Central Bank President Christine Lagarde. The US Fed chief also hinted at another half-point increase in June by citing last month’s policy meeting’s minutes. Powell said many officials had noted that “one or more” 50 basis-point hikes could be appropriate to tame the hottest inflation in four decades.
“The prospect of even faster, more aggressive rate hikes, and whether the Fed can achieve a soft landing, was enough to sharply reverse equity markets, sending them to a sharply lower finish,” said Jeffrey Halley, senior market analyst, Asia Pacific, Oanda.
The European markets also witnessed a sell-off amidst signals from the ECB of monetary policy tightening and mixed corporate results. Investors are also bracing for the second round of voting in the French presidential election on Sunday, where President Emmanuel Macron will face off against Marine Le Pen.
Foreign portfolio investors (FPIs) sold shares worth Rs 2,462 crore on Friday. “Hawkish Fed commentary, rising inflation and bond yields, slowing economic growth, the prolonged war in Ukraine and volatile crude prices keep markets uncertain. Continuous selling by FPIs and weak results by a few heavyweights have further added pressure to the market. The index is likely to remain volatile,” said Siddhartha Khemka, head of retail research, Motilal Oswal Financial Services.
The uncertain environment globally is also expected to weigh on the performance of the domestic economy. UBS Securities on Friday lowered India’s gross domestic product (GDP) growth forecast for the current fiscal from 7.7 per cent to 7 per cent.
All the Sensex constituents, barring six, ended the session with losses. Infosys fell 2.03 per cent and contributed the most to the Sensex’s fall. The market breadth was weak, with 2,030 stocks declining and 1,382 advancing on BSE. Banking stocks declined the most, and its sectoral index on BSE fell 2.2 per cent. On a weekly basis, barring Nifty Auto and Energy, all sectoral indices closed lower.
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