The benchmark indices fell on Thursday as concerns over the effects of a weaker local currency and crude oil prices on the economy outweighed steps by the government and the central bank to restore investor confidence.
Most global markets, too, were down as investors digested the likelihood of more Federal Reserve interest-rate increases stretching into next year.
The Sensex declined 0.6 per cent to 36,324.17, after falling as much as 0.8 per cent. The benchmark is now headed for its worst month in two and a half years, and volatility is back to levels seen in February. The index is down 5.9 per cent in September.
The Nifty declined 0.7 per cent to close at 10,977. The index has ended with losses in seven of eight past trading sessions. From its peak touched a month ago, the 50-share blue chip index is down 6.5 per cent.
India has lost its top spot as Asia’s best-performing stock market this year to New Zealand after a selloff in non-bank financial firms spooked investors already concerned about the impact of higher oil prices and the rupee slump.
“The 25-basis point rate hike by Fed was in line with expectations. The outflow of foreign funds and higher oil prices are weighing on the sentiment. Raising of import duty for essential goods, liquidity constraints with NBFCs, and the derivatives expiry added volatility to the market. This pressure is likely to continue till the financial market stabilises and confidence returns with accommodative valuation,” said Vinod Nair, head of research, Geojit Financial Services.
Seventeen of 19 sector sub-indexes compiled by BSE declined, led by a gauge of real estate and capital goods companies.
Experts said that the US Fed’s statement handed ammunition to hawks and doves alike as investors parsed the language for clues on monetary policy.
“The market forecast a 99 per cent probability of a 25 basis points hike and there has, therefore, not been a significant reaction to the Fed announcement. Investors must be mindful that at some point, the Fed will inevitably become more ambiguous in its forward guidance, making, in our view, the trajectory for US rates progressively more difficult to read,” said Larry Hatheway, chief economist at GAM Investments.