Monday , November 29 2021

Global markets panic as the US Fed hints at more cuts


Mumbai: Stocks were knocked out across the globe on Thursday after the US Federal Reserve said its first cut in interest rates after the global financial crisis was not necessarily the beginning of a rate cut cycle.

Due to the economic slowdown, concerns about taxes on foreign portfolio investors and the subtle recovery of profits, the local benchmark BSE Sensex fell 2.1% in intra-day trading on Thursday before closing at 37,018.32, down 462.80 points or 1.23%, the 50-share Nifty Index closed at 10,980 in the meantime, down 1.24%. Stocks in China and Hong Kong decreased by nearly 1%.

On Wednesday, the Federal Open Market Committee (FOMC) gave a 25 basis point (bps) rate cut, as expected. Although FOMC's official statement indicates the likelihood of one or more interest rate reductions over the coming quarters, Federal President of the United States Jerome Powell's note that the abbreviation is a "mid-cycle adjustment" has confused the market, interpreting it as no more than a reduction of the near future.

Foreign institutional investors, which bought $ 9.4 billion in Indian stocks in 2019, have already sold one-fifth of their value. In July, they sold $ 1.92 billion worth of stock. Foreign investors began dumping Indian stocks after the Union budget raised the surcharge for the ultra-rich, which was also applicable to some FDI.

Jagannadham Tunuguntla, Senior Vice President and Head of Research (Wealth) at Centrum Broking Ltd, said Indian markets were in freefall as FIIs unloaded Indian stocks after the budget due to concerns about high taxes and a weak economy. "In addition, the Fed chairman's statement that the interest rate cut is not the beginning of the interest rate cycle has interrupted investors' excitement as the Fed has refused to play in the capital market gallery. The continuing season of results reflects the likelihood that Nifty companies will post a de-growth of their net profits for the first time, "he said.

Fed comments add to the troubles of investors who are still absorbing a number of unfavorable budget proposals, fears of a deepening liquidity crisis after the death of Coffee Day Enterprises founder V.G. Siddharta against the backdrop of debt distress and poor corporate profits.

Macroeconomic data and car sales for July show that the problems of the economy have not faded. Eight infrastructure sectors, representing 40.27% of the industrial production index, were almost equal (0.2%) in June, likely paving the way for another round of interest rate cuts by the Reserve Bank of India's Monetary Policy Committee on August 7, Figures released by the Comptroller-General of Accounts show that in the first quarter (April-June), the central government has exhausted 61.4% of its year-round fiscal deficit. This compares with 68.7% for the same period a year ago.

For Indian markets, the next major boost is next week's RBI policy meeting and any policy decision the government can take to boost the economy, analysts said.

"Maintaining the fiscal deficit target of 3.3% in fiscal year 20 can be a challenge for the government. It will depend on the collection of Goods and Services Taxes (GSTs), which could be affected by the economic slowdown, "CARE Ratings said.

Analysts at Emkay Global Financial Services Ltd said the main disturbing factor at present is the 1.4% annual growth in gross tax collection, indicating a sharp slowdown in the overall economy. "The oversupply, including the STI, is expected to increase income tax collection for the remainder of the 20 th fiscal period, which will still be half of the 23% budget growth rate. The overall fiscal space seems to be well constrained by lower tax mobilizations and higher spending obligations, which we believe can be supported by the transfer of FDI reserves and the collection of funds through a foreign currency bond issue, "the statement said. the message.

In the meantime, the Comptroller-General and Auditor, in his first-ever GST audit, said the government had failed to test the system before it was implemented, leading to inadequate compliance mechanisms and lower tax revenue.

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