The relief rally on the Dalal Street was short lived, with the key indices giving up much of their previous day’s gains on Wednesday. Markets shrugged off the overnight rally in the US market and awaited Congressional testimony by Fed Chair Jerome Powell. Even the US futures began trading in the red with Dow Jones mini sliding about 1.4%. In Asia, Hang Seng and Kospi plunged 2.6% and 2.7%, respectively.
The Sensex and Nifty50 shed 1.4% each in a broad-based selloff. While the Sensex slumped 709.54 points to settle at 51,822.53 points, the Nifty slid 225.50 points to end the day at 15,413.30.
Analysts at BofA Securities slashed the Nifty50 target for the second time in two months. It lowered the Nifty target from 16,000 to 14,500 for December, citing tightening global monetary conditions, concerns over potential US recession, likely earnings cuts and higher oil prices.
While all the sectoral indices on the BSE ended the day in the red, metals lost the most on mounting concerns over a global downturn. While the BSE metal index plummeted nearly 5%, BSE energy, power, oil & gas and realty lost more than 2% of their value. The BSE midcap and smallcap declined 1.5% and 1.1%, respectively.
Foreign portfolio investors on Wednesday offloaded equities worth $372.59 million. In contrast, domestic institutional investors bought shares worth $237.17 million, provisional data on the exchanges showed. With Wednesday’s sale, FPIs have withdrawn $5.53 billion worth of shares so far in June.
Even as the slowing economic outlook in the US is widely perceived to be a headwind for most markets, Morgan Stanley believes that the downturn due to recession in the developed markets could be relatively shallow for Asia. “Considering the inflation backdrop, we think that monetary easing would come with a lag as compared to previous downturns, and oil prices would need to decline below $100/bbl to create room for meaningful monetary easing.”