New Delhi: Domestic equity markets plunged sharply at the opening tick on Wednesday, in line with Asian peers, after higher-than-expected US inflation numbers sparked a global selloff.
The 30-share pack Sensex plunged more than 1,150 points to open at 59,417.12, whereas NSE’s barometer tanked more than 180 points to 17,887.70. However, both benchmark indices recovered partially.
Investors lost nearly Rs 3 lakh crore at open as the total market capitalization of BSE dropped below Rs 284 lakh crore, which was Rs 286.71 lakh crore at the end of Tuesday’s session.
V K Vijayakumar, Chief Investment Strategist at said that the 4.32 per cent and 5.12 per cent cut in S&P 500 and Nasdaq yesterday again reminds us that there is more uncertainty about inflation and growth and more volatility ahead for markets.
“The worse-than-expected CPI inflation data in the US, despite cooling gas prices, was a surprise. Now the market fears that inflation is getting entrenched and an ultra-hawkish Fed might trigger a hard landing for the US economy,” Vijaykumar said.
Here are the key factors that led to the sell-off on Dalal Street:
Rout in global stocks
US stock market sank sharply on Tuesday after steaming hot inflation numbers. They recorded their worst fall since June 2020 following Wall Street’s humbling realization that inflation is not slowing as much as hoped.
Asian markets, too, opened with big cuts on Wednesday. Tokyo, Hong Kong, Shanghai, Seoul, Taipei and Sydney all opened sharply lower at the start of trading.
Monthly US consumer prices unexpectedly rose in August as declining gasoline prices were offset by gains in the costs of rent and food, giving cover for the Federal Reserve to deliver another hefty interest rate increase next Wednesday.
Prices rose 8.3 per cent in the 12 months through August, the Labor Department said, faster than the 8.1 per cent that economists had expected. Higher than expected readings disappointed the traders.
Rate hike fears
Traders across the globe are expecting the US Federal Reserve to continue to remain hawkish in taming the rising prices with aggressive rate hikes in the days to come. The Fed, some say, may even surprise with a 100 basis points (bps) hike.
The US Fed is likely to deliver another 75-basis-point interest rate hike next week and likely hold its policy rate steady for an extended period once it eventually peaks, according to a Reuters poll. This cements the third straight 75-bps hike.
On the domestic front, market participants expect a 50 bps rate hike from the Reserve Bank of India, as inflation numbers sprang to 7 per cent in August 6.71 per cent a month earlier.
The dollar climbed further against the rupee on Wednesday amid a jump in US yields after hotter-than-expected inflation boosted bets for even more aggressive monetary tightening by the Federal Reserve next week.
The dollar index, which measures the currency against six major peers, was hovering near 110 levels, after surging sharply overnight and its biggest one-day percentage gain since March 2020.
“Downsides extended only as far as 78.99, before pulling back. Favoured view expects such upswing to be challenged in the 79.60-79.70 region. However, upward bias could persist should 79.4 hold,” Anand James – Chief Market Strategist at Geojit Financial Services.
The turn lower cautioned in a note yesterday after peeping into the 18,040-160 band is poised to unfold today. The catchment area is 17,860, said James from Geojit. “Successful pull back above this region later in the day could set the 18,600 trajectory back in motion. Inability to do so could signal extended downsides toward 17,520 in the next few days, but a collapse is still not among the favoured moves,” he added.
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