Fed rate hike fears singe Sensex
Fears of rising inflation and interest rates led to another bloodbath on the stock markets with the Sensex plummeting 1457 points as investor wealth shrank by Rs 6.65 lakh crore.
The meltdown on Monday was fanned by US inflation data released last Friday. May consumer inflation in US rose to 8.6 per cent from 8.3 per cent in April as the possibility of the US Fed getting aggressive on rate hikes filled investors with apprehension.
Market circles said the correction will continue for some more time as investors chase safe haven avenues such as US treasuries and the dollar over riskier assets such as equities. Some even do not rule out the possibility of the key indices falling up to 10 per cent during this calendar year.
The Sensex ended at 1456.74 points or 2.68 per cent lower to finish at 52846.70. The broader NSE Nifty tanked 427.40 points or 2.64 per cent to 15774.40.
“Weak global cues ahead of the Fed meet painted benchmark indices here in a sea of red as the Street awaits retail inflation data on a day the rupee hit a new low. The risk off mode in equities globally after the US inflation print raised fears of an aggressive rate hike,” said S.Ranganathan, head of research at LKP Securities.
“This market turbulence is an opportunity for investors to buy stocks which are beaten down due to FPI selling but have improving fundamentals. The best opportunity is in financials, particularly leading banks,” V.K. Vijayakumar, chief investment strategist at Geojit Financial Services said.
Bond yield at 7.61%
In the domestic markets, yields on the benchmark 10-year G-Sec rose to an over three-year high of 7.61 per cent. It later settled at 7.60 per cent against the previous close of nearly 7.52 per cent.
With retail inflation staying elevated and the RBI continuing to hike interest rates some experts even expect the yields to touch 8 per cent mark this year. US bears on the prowl US stocks opened in bear market territory on Monday, a 20 per cent decline from their peak in January, a sign of growing pessimism about the outlook for the economy.
Markets around the world tumbled, as higher-than-expected inflation and lower-than-expected economic growth upend the outlook for interest rates and corporate profits. Stocks in Asia and Europe fell, investors dumped government bonds, oil prices slipped and cryptos crashed.
The S&P 500 fell 2.5 per cent at the open of trading, as a wave of selling continued. The S&P 500 briefly dipped into bear market territory last month, before recovering to close just above it.
The markets have been jittery since, with the S&P 500 last week recording its worst weekly loss since January. The benchmark US stock index is now “within one bad day’s move of a bear market, and equity futures suggest that we haven’t seen all the negative sentiment expressed yet,” analysts at ING wrote.
Global investors sold stocks, bonds and other assets, as inflation is running high in many countries, supply chains remain snarled and forecasts for economic growth are being downgraded. Stock markets in Asia closed deep in the red, with Japan’s benchmark Nikkei 225 index dropping 3 per cent and South Korea’s Kospi plunging 3.5 per cent. In Hong Kong, shares fell 3.4 percent while an index for China’s biggest companies that are listed in Hong Kong fell 3.6 percent.
(Additional reporting by NYTNS)