India stocks fall again on weakness before US Fed meeting
11:10, 15 December 2021
Indian stock indices extend declines for a fourth day on concerns the US Federal Reserve is likely to resort to a hawkish monetary policy stance at today’s meeting, analysts said.
Foreign investors led the pack of sellers, and a late announcement by the government of an incentive package for the semiconductor industry could not reverse the weakening trend seen since the start of the day.
The bellwether Bombay Stock Exchange’s 30-share Sensitive index ended 0.57% lower at 57,788.03 points from its previous close. The most-traded National Stock Exchange’s (NSE) Nifty50 index weakened 0.6% to 17,221.4 points.
All but one of the 11 sectoral indices ended in the negative zone, with the Nifty Realty index falling as much as 1.89% and the Nifty Bank index weakening 0.28%.
The Nifty Auto index was able to buck the trend with a 0.49% gain. The advance-decline share ratio – the number of advancing shares divided by the number of declining shares – on the NSE was 848-1,231 today.
Anxiety before policy
Sentiment was also hurt after the UK reported the world’s first death of someone with the Omicron virus which led to an increase in global cautiousness.
“Anxiety over more anticipated hawkish policy statement by Fed pressurised the domestic indices to fall. Overall, the Fed is expected to announce a faster end to its bond-buying campaign and may signal a rate hike in 2022 amid rising inflationary pressure,” said Vinod Nair, head of research at Geojit Financial Services.
“While foreign investors continued their selling spree, all sectors barring auto traded in negative territory.”
The federal cabinet has cleared a production-linked incentive scheme for semiconductor makers with the ambition of making the country an electronics hub as the shortage of microchips hurts industrial production, according to a report by CNBC Awaaz television channel.
The government plans to provide incentives worth INR760 ($10bn) crore for semiconductor production over the next six years.
The weak undertone was also seen in the local currency market, where the Indian rupee extended declines and traded at the lowest level since June 2020. The rupee today reached a low of 76.33 against the dollar before trading at 76.20 as of 16.00 IST.
“The dollar is holding the rally and making new highs as the Fed has already acclimatised the foreign exchange market to a faster taper, so any indication over a quickened rate hike calendar will support the appreciation in spot US dollar and we may see it breaching the 76.50 zone,” said investment bank Emkay Global Financial Services.
Currency fall
Barclays pointed out that it sees India’s current-account deficit remaining large. This may reduce India’s foreign currency surpluses, constraining the rupee and affecting equity inflows from foreign investors.
India’s foreign exchange reserves stood at $635.9bn as of 3 December, high by $56.5bn from the same time a year ago, according to information provided by the central bank, the custodian of the reserves.
Stock in One 97 Communications, which runs India’s largest digital payment platform Paytm, tumbled as much as 13% today as anchor investors’ lock-in period ended. The stock, however, recovered to close at 7.6% lower INR1,381.9.
Stock in TVS Motor Company, India’s third-largest two-wheeler maker, ended higher after the company said it was extending and expanding long-term partnership with BMW Motorrad to develop new platforms and future technologies, including electric vehicles. The stock ended 1.4% higher at INR669.4.
Outlook
The market is expected to remain in consolidative mode ahead of decisions by key central banks and a lack of positive triggers, according to Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services.
Investors are awaiting the outcome of the US fed meeting today and looking for cues on when the central bank plans to start hiking interest rates, as well as the pace of stimulus tapering, he added.
Dharmesh Shah, a senior analyst at ICICI Securities, said the Nifty50 index managed to close the day near a good support zone at 17200. “If it manages to hold above that level we may see swift bounce, otherwise we may see more drag down towards the 17100-17000 mark which is another support zone on the downside,” he said.
“On the higher side, the immediate hurdle is formed near the 17300-17400 zone. If we cross above that level, we can expect a positive breakout.”