These are the main factors behind the current market decline
1) Uncertainty about interest rate cuts by the US Fed
Federal Reserve officials remained divided over what might happen next, with “several” policymakers raising the risk of possible increases in borrowing costs if inflation remains high, and others divided over whether and when further cuts might be justified, according to the minutes of their Jan. 27-28 meeting. “Some” others believed interest rates should be suspended “for a while” while they waited for new inflation and economic data. Some of that group argued that austerity may not be appropriate at all until there is evidence that “disinflation is back on track.” If the US Federal Reserve delays rate cuts or raises rates, it will be negative for Indian equities as higher US rates make US assets more attractive versus emerging markets. This could lead to an outflow of foreign portfolios from India, putting pressure on the rupee and tightening domestic liquidity.
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2) Rising oil prices
Oil prices rose in Asian trading on Thursday as the US and Iran sought to defuse tensions over Tehran’s nuclear programme, even as both sides increased military activity in the key oil-producing region. Brent crude rose 24 cents, or 0.3%, to $70.59 a barrel by 0415 GMT, while US West Texas Intermediate (WTI) rose 28 cents, or 0.4%, to $65.47.
Both benchmarks were up more than 4% on Wednesday, marking their highest levels since Jan. 30, as traders factored in possible supply disruptions due to concerns about a conflict between the US and Iran. The White House said some progress has been made in the talks held in Geneva this week, although disagreements remain on some issues. Tehran is expected to come back with further details in the coming weeks.
3) Geopolitical tensions persist
A significant US military buildup in the Middle East – including the deployment of warships, fighter jets and refueling aircraft – has positioned Washington for a potentially sustained campaign against Iran should President Donald Trump approve action, AFP reported.
Trump, who ordered strikes on Iran last year, has repeatedly warned of further military measures if ongoing negotiations fail to broker a replacement for the nuclear deal he withdrew from in 2018 during his first term.On the Russian-Ukrainian front, two days of peace talks between the two sides in Geneva concluded without a breakthrough on Wednesday, as Ukrainian President Volodymyr Zelenskiy expressed dissatisfaction with the outcome, while Washington described the discussions as having made “meaningful progress.” In his late-night video address, Zelenskiy said the results so far were not sufficient.
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4) Profit booking
The frontline indices Nifty and Sensex rose for three straight sessions before falling today on investors booking gains at higher levels. “Going in today, we continue to expect 25,900, while we also see a reasonable possibility of testing 26,050. However, we are uncertain about the momentum beyond the same. This prompts the bear market to move towards 25,728,” said Anand James, Chief Market Strategist at Geojit Investments Ltd.
(Disclaimer: Recommendations, suggestions, views and opinions expressed by the experts are their own. These do not represent the views of The Economic Times)
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