Impact of news on likelihood of withdrawal of stimulus measures by the Federal Reserve

Stock indices tumbled and rupee lost its gains on Monday on the eve of the monetary policy review by the Reserve Bank of India following news on likelihood of withdrawal of stimulus measures by the U.S. Federal Reserve.

The S&P BSE Sensex tumbled by 426.11 points or 2.02 per cent to 20707.45. The Sensex has fallen 3.1 per cent since hitting a record closing high of at 21,373.66 last Thursday.

The rupee, meanwhile, dipped to 63.10 at its close on Monday compared to 62.66 a dollar on Friday. It touched an intra-day low of 63.32. .

On the BSE, the Sensex was dragged down by the realty stocks which tumbled by 6.82 per cent followed by banks (3.97 per cent), metal (3.81 per cent), automobile (3.33 per cent), power (3.01 per cent), capital goods (2.70 per cent) and oil & gas (2.37 per cent). All sectoral indices ended in the red.

On the National Stock Exchange, 50-share Nifty closed at 6135.85 with a loss of 130.90 points or 2.09 per cent.

“The main reason for the heavy market fall stems from the fact that a global poll conducted over the week-end concluded that the Federal Reserve’s plan of tapering its $85 billion Quantitative Easing (QE) programme would have more far reaching consequences on the short-term economy than previously anticipated,” said Raghu Kumar, Co-founder RKSV, a leading broking firm.

Despite most countries shrugging off the potential of major negative economic impact at the World Economic Forum held at Davos, the markets were clearly not satisfied.

Mr. Kumar added that “Fears that the rupee might depreciate over the coming months combined with negative growth prospects due to the QE taper contributed towards the Sensex fall.”