Mumbai, June 6: Stocks caught a global flu today as worries over a possible interest rate hike in the US sparked a selling wave across key markets.
India was no exception with the benchmark BSE sensex closing below the 10,000 mark for the first time since February 17. The index crashed 256 points to end at 9,957.32 as investors fretted over the likelihood of foreign investors moving out to other countries.
The meltdown began after Ben Bernanke, the chairman of the US Federal Reserve, said the US central bank had to be vigilant that inflation stays under control even as the economy there clocks a slower rate of growth.
Bernanke’s comments created a flutter with mounting speculation that there could be more interest rate hikes in the US. The remark rattled many of those who were expecting a pause in the US central bank’s interest rate-raising spree that began in June 2004.
A rise in interest rate in the world largest economy has two implications.
Apart from foreign investors pulling their money out from emerging economies like India to invest in instruments there, export-dependent Asian countries could also be affected as economic activity in the US gets affected due to the hike.
With negative cues emerging from the US, the mood was sombre among market participants here as they went in to trade. The sensex opened 125.52 points lower at 10087.96 and thereafter sunk to an intra-day low of 9884.89. However, the market recovered from these levels on fairly heavy purchases.
Just when it seemed that domestic indices would not witness a steep fall, selling pressure again returned towards the last 30 minutes of trade.
An analyst from a foreign broking house said that with 10,000 levels being breached, retail investors could panic. “This is a psychological level which has been broken. We may now see retail investors selling and there could be redemption pressure on mutual funds,” he added.