Sensex Plunges 900 Points As US Fed Signals Hike In Interest rates

Indian benchmark indices plunged in trade along with Asian markets as the US Fed indicated that a hike in interest rates was coming and it would end its bond buying programme in March, 2022.

The Sensex was trading with losses of nearly 880 points at 56,981 points, while the Nifty was down 266 points in trade. In Asia, the Japanese Nikkei and the Hong Kong's Hang Sang both dropped by more than 2% in trade.

The Bank Nifty was among the major losers in trade with a drop of nearly 1.72%. Heavyweights, HDFC Bank, ICICI Bank and Infosys were some of the biggest contributors to the index losses.

Indian markets are expected to remain weak in the coming days, given that they are vulnerable to any hike in US interest rates. Indian markets have been in a sweet spot over the last 1-year over lower interest rates, but, that is likely to change.

What happens when interest rates in the US rise?

When interest rates rise in the US, there is outflows from emerging market stocks by Foreign Portfolio Investors. These set of investors start chasing high sovereign bond yields in the US, which are safe. The stock markets were in a sweet spot in the last many years. Interest rates were low, which pushed investors to invest in stocks. With interest rates now likely to rise and the Fed also hinting at shrinking its balance sheet, emerging market stocks are likely to come in for a pounding.