Domestic benchmarks tumbled on Friday as global investors feared a recession. The BSE Sensex closed 1,021 points at 58,099, down 1.26% or 742 points for the week. This was the lowest level since August 29. Meanwhile, the NSE Nifty fell 302 points to 17,327 on Friday. The index lost 200 points or 1.16% weekly.

Today’s drop marked the third straight decline for both indexes after the Federal Reserve raised interest rates by 75 basis points late Wednesday.

“Global risk aversion is picking up, helped by a steady rise in the dollar. The dollar is rising against all currencies, impacting capital inflows into emerging markets, including India. The resumption of FPI buying since July has been supporting India’s rally. FPIs are under threat as they have turned into sellers in 5 of the past seven days. When the US 10-year bond yield is above 3.7%, and the US dollar index is above 111, FPIs are unlikely to continue to buy. Investors are likely to wait and see until more money is invested,” said V K Vijayakumar, chief investment strategist at Geojit Financial Services.

Global sentiment turned extremely bearish after the Federal Reserve raised interest rates by 75 basis points on Wednesday and said it would continue to raise rates significantly this year. Other global central banks have continued to raise rates while they are raising rates at a rapid pace. As many as seven central banks reportedly raised rates on Thursday, including those in Hong Kong, Britain and Norway.

US stocks fell as low as 1.4% Thursday evening as the Federal Reserve plans to continue its aggressive rate-raising cycle. US stock futures were also down 0.8% at the time of writing. European indices were also lower, with the FTSE 100 and Euronext 100 down nearly 1.3%. In Asia, Kospi led losses on Friday, closing 1.8% down.

Domestic market sentiment has been hammered over the past two days after the rupee fell to a fresh low of over 81.2 against the dollar on Friday in the face of a rapidly strengthening dollar. Such a sharp currency depreciation continues to increase the risk of a fiscal downturn as imports of fertilisers, petroleum products, and other products become more expensive.

In addition, the depreciation of the local currency makes Indian portfolio investments less attractive to foreign portfolio investors (FPIs). They sold shares worth Rs 2,509 crore on Thursday and Rs 461 crore on Wednesday.

Fears of a recession in the world’s largest economy intensified as the Federal Reserve acknowledged that there could be economic pain as it raised interest rates. Meanwhile, the Bank of England said on Thursday that Britain may have slipped into recession. In the euro area, the services and manufacturing PMIs slowed to 48.9 (49.8 MoM) and 48.5 (49.6 MoM) in September.

Russian President Vladimir Putin on Wednesday ordered the partial mobilisation of reservists who have served in the military to strengthen his troops in Ukraine, as his troops reportedly face setbacks in the war. Putin also warned the West that he would not shy away from using his nuclear arsenal to protect Russia. US officials have reportedly warned Russia of the dire consequences of using nuclear weapons.