Sensex dips 704 points on war, rate hike fears

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MUMBAI: The sensex ended 704 points lower on Tuesday due to end-of-the-session selling triggered by news of Russia opening a new front in its war against Ukraine, with both HDFC and HDFC Bank leading the fall. After opening marginally higher and remaining range-bound for most of the session, strong selling was seen in the last hour. That pulled the index down by over 1,000 points from its intra-day high, and it finally settled at 56,463.
Since scaling a two-andhalf-month high on April 4, the sensex has lost 4,149 points, or nearly 7%, in nine sessions. The retreat has been mainly because of selling by foreign portfolio investors (FPIs). In eight of these nine sessions, the sensex closed lower, BSE data showed. The spate of FPI selling in the last couple of weeks came on the back of rising inflation in most of the developed markets, that’s leading to expectations about sharp rises in the rates of interest.
In the US, with retail inflation at an over four-decade high, the chance of the US Federal Reserve raising rates six times this year is also high, news reports said. This is forcing foreign fund managers to turn risk-averse and take money out of emerging markets, including from India, market players said.

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After a few days of strong net inflows, as FPIs turned sellers in the stock market, the monthly figure has again entered negative territory. Data from CDSL and BSE showed that, so far in April, FPIs have net withdrawn nearly Rs 10,000 crore from the stock market, making it the seventh consecutive month of net outflows.
Given the headwinds the global economy is facing from rising inflationary pressures and geopolitical factors, this could continue for a while. A report by forex advisory firm IFA Global said that major central banks that are preparing for interest rate hikes to fight inflation are also preparing a common pullback from key financial markets in the first-ever round of global “quantitative tightening”. This is expected to restrict credit and add stress to an already-slowing world economy. Euphoria fizzles out The initial euphoria about the proposed merger between leading housing finance company HDFC and top private sector lender HDFC Bank seems to have fizzled out. Shareholders of the two entities have together lost Rs 2. 7 lakh crore in terms of the combined market capitalisation. From a combined mcap of Rs 14 lakh crore at the close of trading on April 4, the day the merger was announced, it’s down to Rs 11. 3 lakh crore, official data showed.
On the one hand, analysts expect some regulatory hurdles to the merger. On the other, investors were not too happy with HDFC Bank’s latest quarterly numbers which, according to some analysts, was heavily boosted by lower provisioning rather than operational income. Since the April 4 highs for these two stocks, the HDFC stock has lost 20% while the bank’s share price is down 19%.

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