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Sensex, Nifty decline 5% in June alone, steepest in 27 months, as FIIs flee Indian equities

In June, Sensex and Nifty lost 4.9 percent each, its steepest fall since March 2020. Both the indices hovered near one-year lows. The rupee at the same time lost 1.8% and the 10-year bond yields stayed flat

June 29, 2022 / 02:44 PM IST
Representative image

Representative image

India's benchmark indices Sensex and Nifty suffered nearly 5 percent decline in June alone as global markets remained largely bleak and foreign investors sold off equities.

With 4.9 percent slump in June - steepest in 27 months since March 2020 - both the Sensex and Nifty hovered at their one-year lows. The rupee, at the same time, lost nearly 1.8 percent to hover at a record low of 79 to a dollar and the 10-year bond yields stayed flat.

The Indian markets saw some recovery in the last few days with oil prices easing off and China lifting Covid-induced restrictions.

The market is under pressure from the anticipation of an economic slowdown fostered by the conflict between Russia and Ukraine. The geopolitical crisis fuelled a record rise in inflation in most major economies around the world, jacked up crude oil prices to $119 a barrel, put commodities simmering, and paved the way for a global food crisis.

The high inflationary condition has forced most central banks rush for monetary tightening, making the situation even more challenging for businesses to revive. The Reserve Bank of India raised the key policy rate twice in the last two months to raise it to 4.9 percent, with warnings of more pain ahead for marketers.

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"The recent rate hike by the RBI, following the US Fed move has created unprecedented turmoil in the market. The US is experiencing a 40-year-high inflation levels and the market sentiment is revolving around the anticipation of further rate hikes in the near future. Consumer confidence is at a record low, indicating the possibility of recession in the US by the end of 2022," said Mitul Shah, Head of Research at Reliance Securities.

Selling pressure from foreign institutional investors (FII) remains as a key driver of the market slump. FIIs sold around $28.37 billion worth of equities between January and June 2022, while domestic institutional investors (DII) chipped in with Rs 2.27 trillion investment during the period.

"We expect the market to remain under pressure over the near term. The FIIs will return to the market in second half of FY23, while the DII investments would continue in 2022, restricting the sharp fall to some extent," Shah said.

 

Brokerage firm BoB Cap cautioned that the rate hikes by the central bank will aggravate the pace of capital flows. "Growth and inflation dynamics are back in action," a BoB Cap report said. "The priority is more towards inflation and we expect inflation to moderate in the next few months."

As the world leaders gathered for the G7 summit, there have been pledges made towards consorted efforts to resolve the impending food crisis and bring down the oil prices. All eyes are now the decisions taken by the three of the top central bankers - European Central Bank President Christine Lagarde, Bank of England Governor Andrew Bailey and Federal Reserve Chairman Jerome Powell.

"Developing countries live their economic lives at the mercy of the US Federal Reserve. This may sound blunt, but that makes it no less true. History may not quite repeat itself, but if the dollar is going to keep strengthening with anything like the ferocity of 40 years ago, the ride will be bumpy for emerging economies," alerted Vikram Kasat, Head of Advisory at Prabhudas Lilladher.
Ravindra Sonavane
first published: Jun 29, 2022 02:31 pm
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