Dalal Street witnessed an awful start to the new week this Monday morning as the market corrected over 2 percent tracking global peers in the wake of red hot US inflation print released on Friday sparking fears of more aggressive interest rate hikes by the Federal Reserve and as investors bit their nails ahead of Indian inflation data rolling out today.
Sensex was down 1,448.13 points or 2.67% at 52855.31, and Nifty tumbled 414.10 points or 2.56% at 15787.70. About 508 shares have advanced, 2428 shares declined, and 105 shares are unchanged.
All sectors were trading in the red with realty and financials down over 3 percent each while midcap and smallcap indices shed over 2 percent each.
Here are the factors sending the shares lower:
Weak global cues
US markets ended lower on Friday as a steeper-than-expected rise in US consumer prices in May fuelled fears of more aggressive interest rate hikes by the Federal Reserve. The Dow Jones Industrial Average fell 880 points or 2.73 percent to 31,392.79; the S&P 500 lost 116.96 points or 2.91 percent to 3,900.86; and the Nasdaq Composite dropped 414.20 points or 3.52 percent to 11,340.02.
The US consumer price index (CPI) increased a bigger-than-expected 8.6% last month, the largest year-on-year increase since December 1981 and a 40 year high, Labor Department figures showed on Friday. That dashed hopes that inflation had peaked, and instead put markets on alert that the Fed may tighten policy for too long and cause a sharp economic slowdown. The next policy decision comes on Wednesday.
Asian markets are trading deep in the red today with all major indices down over 2 percent each. Nikkei shed over 2.5 percent while Hang Seng, Taiwan and Kospi are all down over a percent each as well. SGX Nifty was down 2.64 percent or 426 points at 15,758.50.
Aggressive US Fed
The US Federal Reserve will hike its key interest rate by 50 basis points in June and July, with rising chances of a similar move in September, according to a Reuters poll of economists who see no pause in rate rises until next year. Faced with inflation running at just below a four-decade high and more tightening in the labor market, the Fed is under pressure to quickly take its policy rate to the neutral level that neither stimulates nor restricts - and beyond.
All 85 economists in a June 6-9 Reuters poll predicted a 50 basis point federal funds rate hike to 1.25%-1.50% on Wednesday, after a similar move last month. Another such hike was pencilled in for July by all but a handful of survey contributors.
India Inflation data
Consumer price index (CPI) inflation remains a key factor to watch out for especially after the central bank raised the full-year forecast for FY23 by 100 basis points to 6.7 percent, which is over and above its target range of 4 percent (+/- 2 percent). CPI inflation data will be released today and wholesale inflation data will be announced on June 14. Markets participants will keenly analyse whether the import duty restrictions and rate hikes have had a positive impact on inflation.
FIIs on selling spree
Relentless selling by foreign institutional investors (FIIs) continued in emerging markets including India given the negative sentiment across the globe due to rising inflation concerns amid geopolitical tensions and faster policy tightening by central banks. FIIs have been net sellers for eighth consecutive month, net offloading more than Rs 3.45 lakh crore since October 2021 against Rs 2.63 lakh crore of net buying by domestic institutional investors (DIIs) in the same period. In the week gone by, FIIs net sold Rs 12,662 crore worth of shares, whereas DIIs have managed to compensate the outflow to a large extent by buying Rs 9,611 crore worth of shares in the same period.
Rupee at new low
The Indian rupee hit record low of 78.28 to the dollar while the benchmark 10 year bond yield hit 7.60%, its highest since February 28, 2019.
Sameet Chavan, Chief Analyst-Technical and Derivatives at Angel One
Sharp sell-off overnight in US markets poured complete water on bulls' attempt made on Thursday and as a result Friday’s session concluded on a negative note around the 16200 mark with a cut of 1.68%. There has been no relief in US bourses and any small rebound is getting sold into, which is having a rub-off effect on all markets across the globe. Although we remained above key supports for the major part of the week, Friday’s session displayed a lot of weakness. We have been continuously alluding to the key support of 16300 – 16260 on a closing basis. These levels are finally broken which has negated the minor upward trend that emerged during the previous week after surpassing the 16400 mark. The market is unable to show any kind of strength at higher levels; but despite this, we are still not getting convinced with the weakness. We would rather reassess the situation in the first half of this week and all eyes on crucial levels like 16000 on the lower side and 16400 on the upside.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services
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 stabilise 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 (index of industrial production) 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.Disclaimer: The views and investment tips expressed by experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.