NEW DELHI: Domestic stocks eroded over Rs 6 lakh crore in value as hopes of inflation ‘peaking’ in the US were dashed by a fresh 40-year high print in May that raised aggressive bets on rate hikes by the US Fed, with the latest coming to this week post June 14-15 policy review.
Data showed the BSE market capitalisation, which includes the market value on all BSE listed stocks, fell by Rs 6.45 lakh crore to Rs 245.39 lakh crore in morning trade from Rs 251.84 lakh crore on Friday.
This is after the BSE benchmark Sensex plunged over 1456.74 points or 2.68 per cent to the sub-53,000 level and the Nifty50 tanked over 427.40 points or 2.6 per cent, the lowest since May 19 to close below 15,800 levels.
Bajaj Finserv was the top loser of today’s session, falling 7 per cent. Bajaj Finance, IndusInd Bank, Tech Mahindra, TCS, NTPC, Infosys, State Bank of India, and L&T also settled with deep cuts, falling 3-5 per cent each. Nestle was the only stock from the Sensex pack to end above the flatline.
“The correction in the global markets is due to a double whammy of upcoming policy rate hikes and cuts to the central bank’s balance sheet. Higher-than-expected US inflation data added fuel to the already wrecked market, said Vinod Nair, Head of Research at Geojit Financial Services.
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All sectoral indices settled in the red, with the Nifty IT index falling 4 per cent, most since 19 May, as IT stocks were among the biggest losers of today’s session. Nifty Realty, PSU Bank, Nifty Bank, and Nifty Media also fell around 3 per cent each.
“The weakened rupee, persistent FII selling along with the anticipation of elevated domestic CPI numbers gripped domestic markets in fear,” Nair added.
“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,” said Hemang Jani, Head Equity Strategy,
On the domestic side, India’s inflation data is today on account of which nervousness is likely to be seen in the market. Apart from these, the market would remain cautious ahead of various central banks meetings this week, he added.
Monday Mayhem! Key factors behind 1,500 points Sensex crash
Domestic stocks on Monday joined the global rout, sinking over 2 per cent, as data showed US inflation at fresh 40-year high in May at 8.6 per cent, weakening the narrative of ‘peaking inflation’ and opening up doors for aggressive Fed rate hikes ahead.
Here we decode all key factors that led to the selloff:
US inflation data
Data showed US inflation at 8.6 per cent in May was the highest since December 1981, weakening the narrative of ‘peaking inflation’ and opening up doors for aggressive Fed rate hikes ahead.
The print has led to speculations the Fed may contemplate a 75 basis point lift in interest rates at some point, even as it is likely to stick with a 50 basis points rate hike this week.
“Friday’s hotter-than-expected month-on-month core CPI print in the US means that the peak-inflation narrative, for now, is delayed with the Fed likely to remain on the hawkish path until monthly inflation shows clear signs of sequential slowing. The FOMC will be the main event coming week, where our economists look for a 50-bp hike and Chair Powell likely signalling a fourth 50-bp hike in September,” Nomura India said in a note.
Weakness US futures
As if Friday’s rout was not enough, S&P500 June futures fell 47.75 points or 1.22 per cent to 3,851.25 on Monday morning.
On Friday, the S&P500 had fallen 2.9 per cent to lock its ninth losing week in the last 10. The Dow Jones Industrial Average had lost 2.7 per cent on Friday while the Nasdaq Composite had tumbled 3.5 per cent. A weakness in US stocks weigh on domestic sentiment.
Record low rupee
The domestic currency dropped 36 paise to hit an all-time low of 78.29 against the dollar on Monday, weighed by a strong demand for the greenback amid risk-averse sentiment.
At the interbank foreign exchange, the rupee opened at 78.20 against the American dollar, then lost ground to quote at 78.29 — its record low level, registering a fall of 36 paise from the last close, PTI reported.
A weak rupee makes domestic stocks unattractive to foreign investors.
The US treasury yields surged to 14 year high at 3.15 per cent while dollar index spiked above 104 level.
China Covid scare
Adding fuel to the fire was a Covid outbreak that emerged in Beijing’s most populous district of Chaoyang, where three rounds of mass testing has been announced, spurring lockdown and growth concerns.
A mass testing was also announced on Saturday in the Shanghai commercial hub, following a recent two-month lockdown while an outbreak was also detected in the Inner Mongolia region. China has a tough zero-Covid policy, which has raised concerns that the country’s economic activity may slow down further, hitting demand for metals and oil.
Domestic inflation reading
Investors were also cautious ahead of the release of domestic CPI inflation print for May. That said, a Reuters poll suggested the headline retail inflation may come in at 7.10 per cent. It would be lower than the 8-year high April reading of 7.79 per cent, but still above the RBI’s mandated range.
The RBI hiked the repo rate by 50 basis points to 4.90 per cent last week, taking the total tally of rate increases in the last month to 90 basis points.