Three Reasons Why Market Is Falling: Sensex Slumps Nearly 600 Points, Nifty Below 22,600

The two-day relief rally faded as Indian markets witnessed a renewed selloff on Wednesday, when the country's central bank announced the first rate hike in over three-and-a-half years.

The Nifty 50, which touched a low of 22,588 minutes after the market opened, had recovered from the lows after the RBI opted for a 25-basis-point hike—in line with estimates—as against a shock 50 bps hike. The benchmark index touched a high of 22,717.65 during mid-day trading, which was still 0.26% lower than the previous day's close.

However, a falling rupee and elevated crude aggravated the selloff again, with the Nifty 50 hitting the day's low of 22,558.4 at around 2:15 pm. The index was down nearly 1% at the time.

The 30-stock Sensex also witnessed a similar slide, as it touched a low of 72,468.72, down 0.82% or 599 points from the last session's close.

Here's a look at the three factors pushing the benchmark indices lower:

Policy Jitters

The Reserve Bank's quarter-percentage point rate hike was followed by hawkish commentary, where Governor Sanjay Malhotra firmly put rate cuts "off the table" for the near future. Any subsequent policy action would either be a hold or a rate hike, depending on the incoming economic data, he clarified.

Also, the Monetary Policy Committee (MPC) of the central bank has officially walked away from its path of accommodation, as it has shifted its stance to "calibrated tightening" with a 4:2 vote.

The RBI has also warned of external headwinds, and the erratic weather phenomenon marked by 'El Nino' which could keep inflation sticky for longer than expected.

Elevated Crude

The market sentiment also turned sour due to crude oil futures surging past the $100-mark. Fresh tensions between Saudi Arabia and Yemen's Houthi militias have led to Brent futures rising nearly 1% to $101.53 in the international market.

India, being a heavy crude importer, is sensitive to the fluctuations. A rise beyond the $100 price point often leads to a negative reaction on Dalal Street. The elevated crude, according to analysts, is one of the prime reasons behind the markets recording a weekly decline for eight straight weeks till the period ended Oct. 1, marking the worst losing streak since 2001.

Rupee Woes

While the RBI rate hike was expected to support the rupee, the Indian unit came under pressure due to a strengthening US dollar and rising crude oil. The demand for the greenback rose in the international market, which brought the rupee and other Asian currencies under pressure. The Indian currency weakened 0.3% to 96.75. This weakening of the rupee is expected to worsen the exodus of foreign institutional investors, who have offloaded equities worth Rs 22,676 crore in October so far.