Sensex plummets 1,100 points: 6 factors underlining bearish sentiment

Growing inflation concerns, coupled with fears of aggressive rate hikes by global central banks, hurt Indian equity markets on Thursday. The S&P BSE Sensex fell more than 1,100 points, while the Nifty50 fell below the psychological 16,000 mark, following the overnight drop on Wall Street. Sector-wise, all indexes fell in trade, with the Nifty IT bleeding the most by more than 3%. Additionally, Nifty Metal and Nifty Media also fell more than 2% each. Meanwhile, the broader markets traded tepid as Nifty Midcap 100 lost over 2% and Nifty Smallcap 100 fell over 1%. U.S. indices saw their worst one-day selloff since June 2020 as a rally in growth stocks faded amid worries about economic growth. READ MORE Looking ahead, analysts believe markets will remain jittery in the near term due to recession fears and the prospect of aggressive monetary tightening from the US Federal Reserve (US Fed). That aside, selling by Foreign Institutional Investors (FIIs) may also add to market pessimism. FIIs have been net sellers for eight consecutive months and have so far sold shares worth nearly Rs 38,000 crore in the month of May.

Analysts now expect the selloff to intensify from now on. “As Warren Buffett says, when the interest rate is zero, asset prices are infinite. Once the interest rate starts to rise, gravity will pull us down. Gravity pulls national markets back to We suggest investors stay invested in high dividend yielding and growth stocks at attractive valuations, with liquidity drying up,” said AK Prabhakar, Head of Research at IDBI Capital.

Here are the key factors that led to the strong sell-off in Thursday’s trade:

Weak global indices: Wall Street indices fell on Wednesday as the Dow Jones lost 3.2%, the S&P 500 traded down 3.6% and the Nasdaq Composite slipped 4.3%. The steep fall came after growth stocks reversed, with shares of US retail giant Target falling 25% to $162 in trading, the biggest drop since October 19, 1987.

Not only did Target’s first-quarter profit halve, but management warned of a bigger margin due to rising fuel and freight costs.

That aside, Asia-Pacific markets followed the strong sell-off in US markets on Thursday as investors worried about rising inflation and the war in Ukraine. Hong Kong’s Hang Seng index fell 2.25% while shares of Chinese tech giant Tencent plunged more than 6% after a weak earnings report. Meanwhile, the Nikkei 225 fell 1.75%, South Korea’s Kospi fell 1.34% and Australia’s ASX 200 fell 1.61%.

Hawkish data from the Fed and unemployment in the United States: As consumer prices in the United States soar to 8.2%, the highest in four decades, the Fed is determined to contain rising inflationary pressures by raising interest rates. In his final remark, Fed chief Jerome Powell reaffirmed his hawkish outlook and said the US central bank would continue to raise interest rates until there is “clear and convincing evidence.” “as inflation recedes. The next meeting of the Federal Open Market Committee is scheduled for June 14-15.

Meanwhile, the unemployment rate in April stood at 3.6%, just above the pre-pandemic low of 3.5%. On the other hand, total employment was over 1 million jobs, below February 2020 levels. RBI in rate hike mode: In line with other global central banks, the RBI has also turned hawkish and is eyeing big rate hikes. According to the minutes of the May 4 surprise meeting, most members of the Monetary Policy Committee (MPC) argued for early interest rate hikes given the rapid rise in inflation during the off-cycle monetary policy review earlier this month. READ MORE

Boiling oil prices: After hitting a seven-week high, Brent crude continued to hover above $110 a barrel after Russian supply was cut due to bans from several countries. Additionally, data showed China processed 11% less crude oil in April amid tight Covid-19 lockdowns that also pushed up oil prices.

Free Falling Rupee: The Indian rupee extended its losses in early trade on Thursday as the currency traded at 77.74 to the dollar. The rupiah has fallen nearly 4% this year as the stronger dollar has weighed on demand for emerging market currencies and strong outflows from FIIs have clouded the outlook.

Relentless FII Sale: Ccontinued selling by FII has added pressure to equity markets. FIIs continue to be net sellers for the eighth straight month, selling shares worth nearly Rs 38,000 crore in May so far.

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