Powell's punch! Nifty at 52-week-low: Key factors behind crash

As investors began digesting the implications of the US Fed's rate hike roadmap and dovish commentary to fight inflation, Sensex plunged over 1,000 points and Nifty hit a new 52-week low of 15,335.10.

The mood on Dalal Street was clearly bearish as out of 3,474 stocks traded on BSE, a vast majority of 2,756 stocks were trading in the negative. Investors turned poorer by about Rs 5.5 lakh crore as the market cap of BSE-listed firms dropped to Rs 239 lakh crore.

Here are key factors behind the stock market crash today:

• Fed fear

While hiking the interest rate by 75 basis points to a target range of 1/50%-1.75%, the Fed downgraded its US growth forecasts for 2022 and 2023 but remained adamant there would be no recession. "The Fed’s dot plot was also moved higher with year-end rates expected to be 3.40% from 2.80% previously. That implies another 1.75% of hiking is still to come in 2022," said Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA.

• FPI selloff

Data showed foreign investors have sold equities to the tune of Rs 19,2104 crore so far this calendar. This includes Rs 24,949 crore worth of FPI sold in June so far.

"There might be a case of outflows from emerging markets and underperformance over the next 3 months," warned Caesar Maasry of Goldman Sachs.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said the sustained FPI selling is an additional headwind for Dalal Street.

• Global markets

The fall in Nifty was in tune with what's happening in markets globally. Most Asian stocks also erased early gains as the focus shifted back to fears of recession. After a relief rally overnight, Dow Futures were trading 1.2 per cent lower. Chinese stocks also ended lower while UK's blue-chip FTSE 100 fell 0.5 per cent ahead of a Bank of England policy meeting expected to result in another interest rate hike. Japan's Nikkei, however, ended the day up 0.4 per cent to snap a four-day losing streak.

• Recession Worries

Market experts are worried about whether the Fed's rate hike plan would be able to control inflation and whether it would lead to a recession. Dr VK Vijayakumar said the presently unknown factor is whether the rising rates will tip the US economy into recession.

Zerodha co-founder Nikhil Kamath questioned how would a Fed rate of 1.6 per cent with inflation at 8 per cent contain inflation. "Higher rates discourage capex and borrowing, in theory, this should slow down the economy and curtail inflation. While inflation has averaged 7 per cent for the first half of the year, it would need to fall to 3 per cent abruptly to get it to the short-term 5 per cent target," he said.

Earlier this week, a survey had showed that the US economy will tip into a recession next year as the Fed tries to control inflation which is at its highest level in the last 40 years.

• Technical weakness

The March low of 15,671 had not been breached on a closing basis for three straight sessions but Nifty50 has not only breached that level intraday, but has also tested its support of 15,400. The weakness, if extended, could lead to test of 15,300 and 15,100 levels.

Nagaraj Shetti of HDFC Securities had on Wednesday suggested that said the short term trend of Nifty50 remained weak. "The lack of strength at the important support suggests chances of false downside breakout or one leg of downside."