Modi hope to Fed fears: 3 reasons why stock markets fell today

Indian stock markets have been on a roll over the last week. With CNN-IBN’s election tracker showing a clear Narendra Modi wave sweeping many parts of the country, investors turned bullish and bought. But last week the tide turned. Fear of a slowdown in China gave the Indian market a reality check. Indian equities fell on Friday. The decline extended today. Here are three reasons for the fall in Indian shares:

Fed worries: Worries that the Federal Reserve could re-evaluate its bond buying plan was a major factor that resulted in a sell-off in Asian market stocks, including those in Indian markets. The sell off hit the blue chip stocks in the Sensex and Nifty with the the broader markets declining as well. The Nifty and the Sensex were down over 2 percent as a result. The two day Federal Reserve meet is expected to begin tomorrow.

And don’t expect things to get any better.

[caption id=“attachment_1268411” align=“alignleft” width=“380”] Reuters[/caption]

“I would say we will go down at least 8 percent and then we will take it from there, but I must say as a house we do not like emerging markets. We have not liked them since December last year,“Mark Matthews, Head of Research at Bank Julius Baer & Co CNBC-TV18 .

RBI unexpected to play ball: The Reserve Bank of India is expected to leave interest rates untouched with one Bloomberg poll even suggesting that they could increase repo rates. As a result bank stocks took a hit. The BSE Bankex, which closed about 4 percent down today, was the worst performing sectoral index on the BSE, with bank shares declining up to 10 percent. The RBI reviews in monetary policy tomorrow.

**Slowdown in China:**China’s flash Markit/HSBC Purchasing Managers’ Index (PMI) in January fell to 49.6 in January, from December’s 50.5. Any reading above 50 suggests an expansion and below 50 a slowdown. The January print gave rise to fears of a slowdown in China, which is likely to pull down demand for commodities. This prompted Argentinian central bank to devalue the peso on Thursday. The move had a cascading impact on all major emerging market currencies, including India. The Indian rupee closed at 10-month low today, as emerging market currencies continued their fall.