Indian shares fell about 2% on Friday -- its biggest drop in three months -- as fresh recession fears made investors shun risky assets across the globe.
The share slide came after the World Bank warned that the global economy might be moving slowly towards a recession as central banks try to tame inflation aggressively.
The International Monetary Fund has also predicted a slowdown in the third quarter.
Higher-than-expected US inflation numbers that came out earlier this week have cemented expectations of a big interest rate hike by the Federal Reserve next week.
“Indian markets were the worst performers in the Asian pack, as higher inflation and likely aggressive rate hikes by the US Fed sent stocks tumbling across the board. We are likely to see strong bouts of volatility in the coming sessions as global slowdown looms large,” said Amol Athawale, Deputy Vice President - Technical Research, Kotak Securities Ltd.
Many traders and economists have priced in a 75 basis-point hike, while some others did not rule out a full-point move, according to agencies.
“The likelihood that it (Fed) will have to go ‘big’ again in November is elevated, too,” Raphael Olszyna-Marzys, an economist at Bank J Safra Sarasin, told Bloomberg. The higher interest rates could help in tackling stubborn inflation but they might also send the consumer-spending-driven U.S. economy into a recession. The hotter-than-expected inflation data from the world’s largest economy led to the worst one-day stock selloff in two years in the US equity markets.
The NSE Nifty index closed 1.94% lower at 17,530.85, while the S&P BSE Sensex fell 1.82% to close at 58,840.79 on Friday.