Sensex and Nifty slide sharply on fear of aggressive interest rate hikes by US central bank after strong jobs data

• Indian equity markets fell sharply on Monday on weak cues from global markets after strong US jobs data indicated aggressive monetary policy tightening by the US Fed Reserve.
• Moreover, continuing weak sales for auto manufacturers because of poor rural demand kept markets under pressure.
• Weak Asian markets amid surging US bond yields also dampened the sentiment.

Indian equity markets witnessed a huge sell-off led by weak global cues and as expectation of US hiking its interest rates aggressively became stronger after US jobs data came out good.

Sensex and Nifty 50 slipped nearly 2% each today.

The US added a robust 4.67 lakh jobs in January, much more than economists’ expectations. Economists polled by Wall Street had forecasted 150,000 new jobs.

After the strong employment data, analysts expect the US Fed to increase interest rates more aggressively in the coming months.

In the last few months, the US central bank has been looking to stop measures for economic stimulus and increase interest rates sooner than expected. Rise in the US interest rate does not bode well for the Indian markets, which have seen strong foreign inflows because of pandemic-led easy monetary policies in the US till now.

“The spike in US 10-year bond yield to 1.91% reflects the increasing concerns of high inflation and the Fed being behind the curve. The January jobs report in the US at 4.67 lakh new jobs was way ahead of market expectations. Now it is beyond doubt that the Fed will have to act tough on inflation. If the Fed turns highly hawkish and delivers a 50 basis points rate hike in March, that can cause a sharp correction in markets. Brent crude above $93 is emerging as a major macro headwind for India,” reportedly, said V K Vijayakumar, chief investment strategist at Geojit Financial Services.

Multi-year high oil prices is another risk for Indian markets given the country is one of the largest importers of oil.
Auto company stocks were the biggest losers in the market on Monday as the industry continued to witness weak sales in January because of poor rural demand.

Passenger vehicle retail sales declined 10% year-on-year in January 2022, as the companies continued to suffer production loss amid semiconductor shortage, said automobile dealers' body federation of automobile dealers association (FADA).

Moreover, investors are also awaiting the Reserve Bank of India's commentary on inflation and bond yields in the monetary policy meeting this week amid rising oil prices and the government's higher spending plans.

Markets reacted negatively and bond yields rose after the government announced a huge capex. Rise in bond yields reflect receding confidence in the sovereign’s capacity to repay loans, and at times, a lack of confidence in the financial estimates provided by the government.

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