Indian financial markets' 30-stock gauge Sensex slumped over 1,000 points as markets opened on Thursday morning reacting to global macroeconomic events. The Nifty50 fell 321 points and in the last five trading sessions, both the benchmarks have fallen over 2% with the Nifty50 now trading below the 24,000 mark.
What drove Dalal Street lower on Thursday morning? Three factors primarily.
US Fed Cuts Rates, Surprises With Hawkish Tone
The U.S. Federal Reserve cut the Fed funds target rate by 25 basis points late on Wednesday night. This was the second rate cut in 2024, with the first one in September. While a rate cut is considered largely positive for equities as a whole, the commentary delivered by the Fed Chair Jerome Powell spooked the markets globally.
Powell took a hawkish tone, indicating that the path to cutting rates might become slower from here-on.
Nasdaq Slumps, Nifty IT Follows
After the Fed Chair's dovish comments, the tech-heavy Nasdaq composite index fell as much as 3.9% before paring some losses. A slowdown in the rate cut cycle would imply slower growth prospects for the information and technology stocks as a pick-up in discretionary spends also slows.
The Nasdaq fall translated to Nifty IT on Thursday morning, which mirrored the move as the worst-performing sectoral index falling 2.3%, before paring some losses.
Bank of Japan Delays Rate Hike
Before market open, the Bank of Japan, which was set to announce its policy decision, declared a status-quo on its key policy rates at 0.25%.
While the large-scale easing helped move the economy out of deflation, high uncertainties still remain over economic activity and prices, the Bank of Japan statement reads.
A majority of economists polled by Bloomberg indicated a rate hike expected by the Bank of Japan in the month of January.
A rate hike by the central bank usually follows a depreciation in the country's currency. While the dollar is on an uptrend, supported by the US' rate easing, the decline in the Japanese Yen could lead to a resurgence in the Yen Carry Trade which saw the Nifty 50 index fall by over 660 points on Aug. 5 earlier this year.
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