Indian Stock Market Dips Significantly After US Federal Bank Hikes Interest Rate

After a strong start to 2022, Sensex finally fell victim to the interest rate hike announcement from US Federal Reserve. On 6 January 2022 alone, the market fell about 900 points, only in India. The same can be said about other markets of Asia and the USA.

This comes as an aftermath of US Federal Reserves’ commentary indicating an interest rate hike sooner than what was previously expected. This sudden announcement swayed the investors into selling-off. Resultantly, industries like FMCG, metals, IT, and infrastructure were the most affected. On the contrary, stocks of pharmaceuticals and other related services saw a surge in demand.

A Closer Look at the US Federal Reserves’ Commentary 

The monetary policy minutes of the US Federal Reserve clearly states that its participants feel the need for an interest rate hike. Given their outlook of economy, inflation and labour market, they feel it is the right time to increase the federal funds rate and at a higher pace. This document also acknowledges that this announcement is coming earlier than what they have actually predicted.

Along with that, the Federal Reserve will also try to reduce its balance sheet size after raising its funds’ rate. This last announcement here is particularly interesting as it indicates a sell-off of bonds. Resultantly, it will trigger the treasury bond yield of 10 years that went up to 1.7%.

A point to remember here is that the US Federal Reserve, a few weeks back, already announced that it would end its Covid-19 relief packages. Also, it will increase interest rates at least 3 times next year. Therefore, this hike in the federal funds rate is not an unforeseen event.

What Does it Mean for India’s Economy?

This surge of federal funds rates was inevitable; however, nobody expected an announcement this early in the year. Nonetheless, the market will recover from this drop, as it is the natural progression of things.

Moving ahead, an increase in federal funds rates will automatically change the equation of dollar and rupee. Resultantly, there will be some implications, but what they will be and how severe they will be, that is yet to be seen.

Bottom Line

With the Covid-19 cases increasing once again, volatility in the market was expected, and this announcement has just fuelled that fire. However, this is not a panicky situation by any means. The interesting aspect to keep an eye on here is how the USA’s Federal Reserve moves ahead with its proposed plans and whether they implement any new policy changes that can also have an impact on the global market.

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Source: Business Insider

Frequently Asked Questions

1. What was the fall of Sensex at the end of 6 January 2022?

The Sensex fell by 621.31 points when the market closed on 6 January 2022.

2. By how many points did Nifty fall on 6 January 2022?

When the market closed on 6 January 2022, Nifty was down by 179.40 points.

3. Who were some of the top gainers on 6 January 2022?

Some of the top gainers on 6 January 2022 were UPL, Bajaj Auto, IndusInd Bank, Maruti, Eicher Motors, and Bharati Airtel.

Disclaimer: This blog is exclusively for educational purposes and does not provide any advice/tips on investment or recommend buying and selling any stock.