The NSE Nifty fell 111.65 points or 0.65% to close at 16,988.40. The BSE Sensex declined 360.95 points or 0.62% to end at 57,628.95.
“It’s the fear factor that the crisis in the developed market financial system will not end soon which is dragging down the market at the moment,” said Siddarth Bhamre, head, research, Religare Broking.
Both indices, which had fallen as much as 1.6% earlier in the day, cut losses after European markets edged higher from lows.
The pan-Europe index Stoxx 600 was up 0.98% at the time of going to print, while the Stoxx Europe 600 Banks Index, which tracks 42 big EU and UK banks, was up over 1.27% after UBS on Sunday agreed to buy the stressed bank Credit Suisse for $3.2 billion. Credit Suisse shares plunged 55.74%, while UBS was up 1.26%.
In the wake of the crisis at Credit Suisse and the collapse of two American banks, central banks in developed economies led by the US Fed announced a coordinated effort to ensure adequate availability of the dollars through the global financial system. The move is part of their efforts to ensure that dollar liquidity does not dry up.
With the developed market financial system facing troubles, investors are betting that the Fed might signal that it would go slow on interest rate increases. The recent slide in US bond yields suggests the American central bank might project a less hawkish monetary policy outlook to ease the pressures on the financial system. Some analysts said the central bank is however not in a position to loosen its monetary policy in the face of persistent inflation.
