Sensex, Nifty trade flat as hawkish Fed pause dents sentiment. What's driving the caution?

The Indian stock market traded flat on Thursday after the US Federal Reserve left its key interest rates unchanged, with a growing number of policymakers indicating a rate hike later this year.

After opening in red, at 9.28 am, Sensex rose 50 pts to trade above 77,700, while Nifty 50 rose above 24,250. Meanwhile, broader markets remained in the red.

Asian Paints, Adani Ports, Eternal, IndiGo, Axis Bank and ICICI Bank shares were the top losers on Sensex, falling up to 3%. On the other hand, Infosys shares jumped around 2.5% to lead gains, while Tech Mahindra, HCL Tech and TCS rose 1-2% to follow.


Sectorally, Nifty Realty and Nifty Private Bank indices dropped over half a percentage, while Nifty IT jumped nearly 2%. The overall market breadth, however, favoured the bears, with NSE seeing 1,480 declines and 1,010 advances, while 121 stocks remained unchanged.

Fed keeps rates unchanged

The US Federal Reserve left its key interest rate unchanged as expected after its FOMC meeting on Wednesday, but the American central bank’s chair Kevin Warsh pledged ‌an unwavering ⁠commitment ⁠to bring inflation down, leaving investors confused.

Markets are now pricing in a 63% chance of a rate hike in September, down from about 81% before the policy decision, according to CME Group's FedWatch tool. However, three regional Fed bank presidents who dissented had previously called for or signaled that they would be open to raising rates to combat high prices.

What lies ahead?

The Indian market construct indicates a breakout trend, but the potential breakout is being constrained by many headwinds, VK Vijayakumar, Chief Investment Strategist at Geojit Investments noted. He highlighted that the spike in Brent crude again to near $90 following the escalation of the US-Iran conflict is a strong headwind.

“Feds decision to pause rates yesterday, though expected, turned out to be negative for equity markets since the decision was a 9-3 split decision with three members voting for a rate hike to control inflation. This split decision indicates that a rate hike may come soon. Consequently bond yields increased impacting equity markets which saw a 2% sell off in S&P 500,” the analyst said.

The Indian market is likely to respond differently since the sell off in chip stocks and FPIs turning buyers in India, so far in July, are turning favourable for the Indian market, he said. South Korea’s Kospi is down 31 % during the last one month and FPIs have turned big sellers in chip stocks. “Indian economy continues to be resilient and this will provide fundamental support to the market,” the analyst added.

Technical view on Nifty

The Indian stock market has entered a volatility zone, but a complete trend reversal is less expected right away, said Anand James, Chief Market Strategist at Geojit Investments. He noted that the favoured view sees 24,190-24,145 region absorbing weakness, and support upswing attempts during the day.

Nifty’s direct fall below 24,085 could however lend momentum to downside attempts, according to the analyst.

(With inputs from agencies)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)