Fed minutes, other key factors behind market decline

The benchmark equity indices erased early gains and slipped into the red by mid-session on Thursday, tracking caution among investors after the US Federal Reserve released the minutes of its latest policy meeting.

The BSE Sensex, which had jumped 504.57 points in early trade to 81,816.89, gave up all gains and declined sharply. The index shed 600 points from the day’s peak. Meanwhile, the broader NSE Nifty, which had touched 24,889.70 in opening deals, fell below the 24,750-mark by afternoon.

Jio Financial Services, HDFC Life Insurance Company, Bharat Electronics, Bajaj Finance and HDFC Bank were among major laggards, declining up to 2 percent.

Key Factors Behind Market Decline

1) Caution Ahead of F&O Expiry: With the expiry of monthly derivatives contracts for the Nifty and Bank Nifty due on Thursday, traders turned cautious, leading to volatility. Bajaj Broking Research noted that the Nifty has been consolidating in the 24,400–25,200 range for the past 12 sessions and is likely to continue in the same band until a clear breakout emerges.

2) Hawkish Fed Minutes: Minutes of the Federal Reserve’s May 6–7 policy meeting, released late Wednesday, revealed that “almost all” of the 19 officials saw a risk that inflation could stay higher for longer. The Fed kept interest rates unchanged, but the tone signalled growing concern over persistent price pressures. Policymakers also flagged the potential for “difficult trade-offs” as they navigate rising inflation and employment risks.

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3) Geopolitical Concerns: Security analysts noted that the tensions flared up again after German Chancellor Friedrich Merz pledged to support Ukraine in developing long-range missile systems. Russian President Vladimir Putin warned last year that such moves could drag Western countries into direct confrontation.

Brigadier (Retd.) V Mahalingam noted: “The fact is, Taurus strike on Moscow would have to be prepared and executed by German service members because the Ukrainians cannot maintain [the Taurus] or program it for flight missions. Such a strike by Ukraine using German servicemen, will be considered a German attack on Russia and Germany will have to bear the consequences.”

4) Rising Crude Oil Prices: International oil benchmark Brent crude jumped 1.11 percent to $65.62 per barrel, raising concerns for oil-importing countries like India. A rise in crude prices puts pressure on India’s current account deficit, weakens the rupee, and pushes up domestic inflation, all of which are negative for equities, especially oil-sensitive sectors.

What technical analysts suggest? 

VK Vijayakumar, Chief Investment Strategist at Geojit Investments, noted “Nifty is consolidating in a 500 point range within 24500 – 25000. A breakout or breakdown from this range appears difficult in the near-term.”

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