US jobs data triggers speculation of US Fed rate hike

It turned out to be a black Monday for stock markets with the Bombay Stock Exchange (BSE) benchmark Sensex plummeting 604 points and the Nifty tumbling 181 points, their biggest single-day drop in two months, as shares were dumped on fears of an earlier-than expected rate hike by the US Federal Reserve following stronger-than expected jobs data.

The Sensex fell 2.05 per cent to 28,844.78 while the Nifty closed down 2.03 per cent to 8,756.75.

The rupee also fell 39 paise to close at 62.55 against the dollar.

"... markets fear rate hikes by Fed backed by reviving growth and better-than-expected jobs numbers," said Bonanza Portfolio senior vice-president Rakesh Goyal.

After the US Labour Department announced that unemployment fell to 5.5 per cent in February, the lowest level since May 2008, investors feared that the US Fed will lift rates from near zero as early as summer, which would trigger an outflow of foreign capital, brokers said.

If the US Fed hikes rates earlier than markets estimated, emerging countries like India may be hit.

Alex Mathews, head of research, Geojit BNP Paribas Financial Services, said, "The markets today witnessed a heavy sell-off on the back of weak global cues and a weak rupee.

The global markets were down on the concerns that the Federal Reserve may increase its interest rates on the basis of strong US jobs data."

"High valuations after the recent record-breaking rally and with lack of definite cues, domestic investors preferred booking profits", a broker said.

"After hitting a fresh peak in the previous week, Nifty struggled to sustain at the top and has, in fact, corrected meaningfully", he added.

The 30-share Sensex resumed with a gap down and moved southwards to break the 29,000-mark to a low of 28,799.76 before concluding at 28,844.78.

This is its worst daily drop since January 6.

The 50-issue Nifty dipped below the 8,800-level by tumbling 181 points to 8,756.75.

Intraday, it shuttled between 8740.55 and 8891.30.

Monday's loss was also Nifty's biggest drop since January 6, when it fell 251 points.

"There are concerns over liquidity flow into India and other emerging markets when US actually increases interest rates," said Dipen Shah, head of private client group research, Kotak Securities.

Elsewhere in the region, barring Shanghai Composite, which rallied on the back of strong export data, most equities remained under intense selling pressure with key indices in Hong Kong, Japan, Singapore and Taiwan ending lower. Europe too was trading lower in late morning deals.

France's CAC was down by 0.76 per cent, Germany's DAX by 0.38 per cent and the UK's FTSE by 1.42 per cent on the back of fall on Wall Street last weekend.