MUMBAI: The domestic equity markets extended their losses for the second straight day amidst weakness in global markets as investors fretted over the possibility of an interest rate hike by US Federal Reserve next month that could trigger outflow of funds from riskier assets. The minutes of the US Federal Reserve’s April meeting released on Wednesday hinted about a possible interest rate hike in its June meeting.
The Sensex slumped 304.89 points or 1.19 per cent to end the day at 25,399.72 while the Nifty ended the day at 7,783.40, losing 86.75 points or 1.10 per cent. According to the provisional data released by the stock exchanges, foreign portfolio investors offloaded shares worth Rs 764.58 crore on Thursday.
The rupee also plummeted by 39 paise to hit an over two-month low of 67.36 per dollar on persistent demand for the American currency from banks and importers amid strengthening dollar.
The bullion market too was impacted by the US Fed move as gold fell by Rs 230 to conclude at Rs 29,700 per 10 grams from Wednesday’s closing level of Rs 29,930. The gold price is inversely proportional to the dollar price.
“The market slipped on hawkish FOMC minutes which increased the probability of a Fed rate hike in June. The recent rise in US inflation is also strengthening the rate hike possibility which has tempted investors to book profits. Most of the Asian markets witnessed correction due to the concern on outflow of funds from the emerging markets,” said Vinod Nair, head of research, Geojit BNP Paribas.
Ajay Bodke, chief executive officer and chief portfolio manager at Prabhudas Lilladher said any interest rate hike by the US Federal Reserve in June would cause widespread volatility in global financial markets.
“Most of the market participants expected a rate hike only by the end of this calendar year. If the US Federal Reserve springs a surprise by increasing rate in June, global markets would witness high bout of volatility,” he said.
Since Britain is voting to decide whether to continue in European Union or not in a referendum on June 23, Mr Bodke feels the US Fed may refrain from hiking interest rates. Even if the Fed decides to go ahead with its rate hike, Mr Bodke believes Indian markets would be able to weather the crisis as monsoon would have already arrived in the country.