Freaky Friday: Fears over Fed rate hike spook Dalal Street! What lies ahead?

It was a freaky Friday on Dalal Street after the comments from a Federal Reserve official raised fears that the US central bank will hike rates aggressively to fight inflation.

Concerns over unabated foreign capital outflows also affected the mood of the markets. Equity benchmark Sensex crashed over 1000 points to hit an intraday low of 57,914. Likewise, Nifty plunged over 260 points at 17,345 amid weak global cues.

Divam Sharma, Founder at Green Portfolio, SEBI Registered Portfolio Management Service Provider said that the markets are expecting faster than anticipated rate hikes post the announcement of inflation numbers in the US yesterday. The fall today is led by IT stocks which are facing headwinds due to the rise in USD-INR post the enhanced expectations around rate hike announcement in the Fed meeting coming Monday.

"We believe that the worst of the expectations should be priced in soon and the markets should start the upwards journey as we see actual rate hikes being implemented by US Fed over the coming meetings," he added.

"On the technical front, the index has formed a Doji kind of Candlestick on a weekly chart which points out the confusion between buyers & sellers. Furthermore, the index is trading below the middle band of Bollinger, which suggests downside movement in the counter. On an Hourly Chart, the index has been trading below 21*50-HMA with the negative crossover, which suggests weakness for next session," said Palak Kothari, Research Associate, Choice Broking.

Moreover, she added that the daily momentum indicator Stochastic as well MACD is also trading with a negative crossover which adds weakness in prices. At present, the Index has support at 17,130 levels while resistance comes at 17,600 levels. On the other hand, Bank Nifty has support at 38,000 levels while resistance at 39,000 levels.

Vijay Dhanotiya, Category Lead- HNI Products at CapitalVia Global Research said, "The market witnessed volatile movements after the initial gap down in the market and an attempt to hold the support level around the Nifty 50 Index level of 17,400. While sustaining above 17400 is the key factor from a short-term perspective, if the market is unable to sustain the level of 17,400, the market might see a correction to the level of 17,100. Technical indicators suggest a volatile movement in the market."

"Indian equity markets, like their Asian counterparts, have been trading in the red as traders worry about US inflation, which has soared to its highest level in four decades, hammering American consumers, wiping out pay raises, and reinforcing the Federal Reserve's decision to start raising borrowing rates across the economy," noted Gaurav Garg, Head of Research, Capitalvia Global Research.

He added that the selling intensified after former Reserve Bank of India Governor D Subbarao stated that low-interest rates and the vast amount of liquidity available in the economy today could jeopardize financial stability.

He went on to say that the issue for central banks, including the Reserve Bank of India, was to strike a balance between maintaining price stability, supporting growth and employment, and maintaining financial stability in a globalised world.