Bears seem to be ruling Dalal Street as the benchmark indices are not showing any sign of recovery, having fallen more than 6 percent from their recent mid-September high tracking weakness in global counterparts.
Fears of a global recession seem to be mounting in the wake of the aggressive policy tightening approach adopted by the US Federal Reserve to control inflation that came in at 8.3 percent for the 12 months to August. The Fed targets to bring inflation down to 2 percent even at the cost of economic pain.
Other central banks including the Bank of England followed suit by raising policy rates. Now the street is closely watching what happens at the Reserve Bank of India (RBI) which will release its statement on September 30.
Experts largely expect an increase of 25-35 basis points (bps) in its policy repo rate given expectations of cooling inflation worries with falling commodity prices, but they are also not ruling out a 50 bps hike if the RBI wants to echo the Fed’s hawkishness.
“Especially after the latest Fed meeting and associated growth worries, key commodity prices have halved from their peak. Inflation prints in the US and EU (European Union) are running at 400 percent above their target, whereas in India the divergence is only 16 percent above our upper band, and this gives the RBI room to maintain their focus on real growth and keep rates relatively capped,” said Divam Sharma, founder at Green Portfolio, a Delhi-based portfolio management services firm.
He expects rates to settle below the 6-percent mark in the medium term. The current repo rate is 5.40 percent.
The Nifty 50 was quoting at 17,052, down 275 points or 1.6 percent, and the BSE Sensex had fallen 815 points or 1.4 percent to 57,284 at the time of writing this article, dragged by most sectors barring IT.
The selling pressure mounted in the broader market as the BSE Midcap and Smallcap indices plunged around 3 percent each amid weakening market breadth. More than six shares declined for every share rising on the BSE.
Wealth erosion
With the consistent selling pressure, investors have seen nearly Rs 18 lakh crore of wealth eroded in the last nine days as the BSE market capitalisation tumbled from Rs 286.71 lakh crore to Rs 269.06 lakh crore at the open (at the time of writing this article).
Much of the wealth erosion was seen in the last four days, with more than Rs 14 lakh crore of wealth destroyed in four consecutive sessions (September 21-26).
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