Bears prowled Dalal Street and tightened grip on the Indian equity markets on Monday, as inflation concerns and fears of aggressive interest rate hikes by the US Fed spooked investors. May consumer inflation hit a fresh 40-year high of 8.6% in the US, while India CPI inflation in May is expected to stay above 7%. Given this, the BSE Sensex tumbled over 1,500 points to hit an intraday low of 52,737 levels, while the NSE Nifty 50 broke below 15,800 levels. Broader markets too fell in line with headline indices. All sectors bled in red with bank, metals, and realty falling the most under selling pressure. Persistent equity selloff by FIIs, negative sentiments across global markets, coupled with a weaker rupee was dampening investors’ risk appetite, according to analysts.
Markets to remain cautious ahead of various central banks’ meetings
“Nifty opened gap down as equity markets across the globe are witnessing a sell-off after US May inflation data accelerated to four decades high which raised concerns about aggressive rate hikes by US Fed in the upcoming monetary policy meet due this Wednesday. US treasury yields surged to 14 year high at 3.15% while dollar index spiked above 104 levels. US futures are also down ~1%. On the domestic side, India’s inflation data is due today on account of which nervousness is likely to be seen in the market. Apart from these, the market would continue to remain cautious ahead of various central banks meetings this week,” said Hemang Jani, Head Equity Strategy, Motilal Oswal Financial Services.
Factors dragging markets today
US inflation: The US inflation hit a fresh 40-year high in May, accelerating to 8.6% from a year ago and beating street estimates. The red-hot inflation extended Wall Street’s selloff on Friday.
Fear of aggressive rate hikes by US Fed: After the latest US inflation data point – the US Fed is likely to continue its aggressive interest rate increases to help cool high prices after their 2-day FOMC meet due on June 15. The rate hike fears sent US 10-year treasury yields above 3% for the first time in three years.
Volatile crude oil prices: Oil extended losses for third straight day as investors anticipated further monetary tightening by the US Fed. Both Brent Crude and WTI Crude slipped 1.4% to trade at $120 per barrel and $118 per barrel, respectively.
Indian inflation data: India will release retail inflation figures for the month of May on Monday, June 13. According to a Reuters’ poll, economists expect the consumer price index (CPI) to slip 7.10% in May from 7.7% in April.
Rupee’s freefall and FII outflow: The Indian rupee fell to a record low of 78.15 against the US dollar on Monday on stronger demand for dollar, fear of rising interest rates by the US Fed, and volatile crude oil prices. India’s decline in foreign exchange reserve by Rs 30.6 crore in June also weighed on the domestic currency.
Additionally, persistent selling by foreign portfolio investors (FPIs) dampened investors’ sentiment. FPIs have been net sellers for eight consecutive month, offloading Rs 13,888 crore worth of equities so far in June. With this, the FPIs have sold Rs 1,81,043 worth of equities so far this year.
Indian market will stabilize only when the US market stabilises
“The near-term market trend is weak. The May US inflation print at 8.6% against the market expectation of 8.3% is likely to turn the Fed more hawkish with a series of 50 bp rate hikes taking the terminal rate by mid 2023 above 3.5%. Such a scenario would be negative for risky assets like equity, particularly in the context of declining global growth. The Indian market will stabilize only when the US market stabilises. Therefore, investors may wait and watch till clarity emerges on the market trend. One silver lining is the 7.1% increase in IIP which indicates that the Indian economy is doing well. Therefore, long-term investors can use the dips in the market to buy high quality economy-facing stocks like capital goods, banking, telecom and export segments,: said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.