Markets Turn Volatile; Hawkish Fed Outlook Drags IT Stocks Lower

Indian equity benchmarks surrendered early gains on Thursday as a sell-off in information technology stocks offset support from lower crude oil prices and easing geopolitical tensions in West Asia.

The NSE Nifty 50 fell as much as 0.1% to 24,058 after rising 0.2% earlier in the session to 24,133.35. The BSE Sensex also slipped 0.1% to 77,066 after touching an intraday high of 77,281.

Investor sentiment remained cautious after the US Federal Reserve delivered a hawkish policy message overnight, prompting concerns that global interest rates may remain elevated for longer than previously expected.

IT Stocks Lead Market Decline

Technology stocks emerged as the biggest drag on the market after the Federal Reserve kept rates unchanged but signalled that policymakers still see scope for further tightening.

The Nifty IT index declined 1.8%, making it the worst-performing sectoral index on the NSE.

Infosys fell 2.3%, while HCL Technologies dropped 1.8%. Tata Consultancy Services (TCS) lost 1.3%, while Tech Mahindra and Wipro declined 1.3% and 0.9%, respectively.

The weakness mirrored losses in US technology stocks overnight after updated Fed projections showed that nine policymakers expect at least one rate hike by the end of 2026.

Fed Chair Kevin Warsh reiterated the central bank's commitment to controlling inflation, prompting investors to reassess expectations around future rate cuts.

The Dow Jones Industrial Average ended 0.98% lower overnight, while the S&P 500 declined 1.21% and the Nasdaq Composite fell 1.34%.

Hawkish Fed Message Weighs On Sentiment

The Federal Reserve maintained its benchmark interest rate in the 3.50%-3.75% range, in line with market expectations.

However, investors focused on the updated policy projections, which showed the median estimate for the 2026 year-end policy rate rising to 3.8% from 3.4% projected earlier.

VK Vijayakumar, Chief Investment Strategist at Geojit Investments, said the Fed's message was more hawkish than markets had anticipated.

"The hawkish message sent by the new chief of the Fed, Kevin Warsh, was a bit unexpected since Warsh has been in favour of rate cuts and that was what President Trump wanted. But the persistently high inflation in the US left the FOMC with no choice but to send a hawkish message," Vijayakumar said.

He added that the Fed's dot plot suggests the possibility of another rate hike later this year, while the US 10-year bond yield has climbed to 4.46%, triggering selling pressure in US equities.

Falling Crude Prices Offer Support

Despite the pressure from global markets, lower crude oil prices continued to provide support to domestic sentiment.

Brent crude slipped below $79 a barrel as an interim peace arrangement between the United States and Iran came into effect, shifting attention towards the reopening of crude flows through the Strait of Hormuz.

West Texas Intermediate crude traded near $76 a barrel.

Lower oil prices are viewed as a major positive for India as they help ease inflationary pressures, reduce the current account deficit and support the rupee.

The Indian currency, however, weakened slightly during the session and depreciated by as much as 19 paise to 94.72 against the US dollar.

Vijayakumar noted that the sharp decline in Brent crude to around $78 and the stability in the rupee remain key positives for Indian markets.

"Indian market will not be unduly influenced by developments on the Fed rate front. In the near term the market will remain resilient supported by the crash in Brent crude to around $78 levels. Rupee is stable at around 94.52 level. FII selling has tapered off as expected and yesterday FIIs turned buyers, though in limited quantity," he said.

NSE IPO Filing In Focus

Among key developments, investors also tracked the filing of draft papers for the long-awaited IPO of the National Stock Exchange (NSE).

The exchange filed its Draft Red Herring Prospectus (DRHP) with SEBI and the BSE on Wednesday. The proposed IPO is entirely an offer for sale, with existing shareholders collectively divesting around 6% of the exchange's equity.

Based on NSE's estimated unlisted market valuation of around ₹5 lakh crore, market participants expect the issue size to be approximately ₹30,000 crore, making it one of the largest IPOs in India's capital markets.

Asian markets traded mixed on Thursday. Japan's Nikkei 225 rose 1.44%, South Korea's Kospi gained 0.93% and Thailand's SET Index advanced 1.16%.

Australia's ASX 200 declined 0.14%, while New Zealand's NZX 50 slipped 0.03%.

Analysts said investors would continue to monitor crude oil prices, foreign fund flows and commentary from the Federal Reserve for further market direction.