Rising inflation concerns, coupled with fears of aggressive rate hikes by global central banks, hurt Indian equity markets on Thursday. The S&P BSE Sensex crashed over 1,400 points, while the Nifty50 broke below the psychological mark of 15,900, tracking the overnight slump on Wall Street. Sectorally, all indices thrashed in trade with the Nifty IT bleeding the most by over 5 per cent. Besides, the Nifty Metal and Nifty Media also sunk over 4 per cent and 3 per cent, respectively. Meanwhile, broader markets traded tepid as Nifty Midcap 100 shed nearly 3 per cent and Nifty Smallcap 100 dipped over 2 per cent. US indices witnessed their worst one-day sell-off since June 2020, as a rally in growth shares faded amid economic growth concerns. READ MORE Going forward, analysts believe that markets will continue to remain on the edge in the near-term over fears of recession and prospects of aggressive monetary tightening by the US Federal Reserve (US Fed). That apart, selling by foreign institutional investors (FIIs) may also add to the pessimism in the markets. FIIs have been net sellers for eight straight months, and have dumped equities worth nearly Rs 38,000 crore in the month of May so far. Analysts, now, anticipate selloff to deepen further from here on. “As Warren Buffett says, when interest rate is zero, the asset prices are infinity. Once the interest rate starts to rise, the gravity will pull us down. The gravity is pulling the domestic markets down to reality. With liquidity drying up, a deeper selloff is anticipated. We suggest investors to remain invested in high dividend yielding and growth stocks at attractive valuations,” said AK Prabhakar, head of research, IDBI Capital.
Here are key factors that drove the sharp selloff in Thursday’s trade: Weak global cues: Wall Street indices tumbled on Wednesday as Dow Jones shed 3.2 per cent, S&P 500 traded lower by 3.6 per cent, and Nasdaq Composite slipped 4.3 per cent. The sharp plunge came after growth shares reversed rally as shares of US retail giant Target fell 25 per cent to $162 in trade, the biggest fall seen since October 19,1987. Not only did the first quarter of Target’s profit halved but the management warned of a bigger margin hit due to rising fuel and freight costs. That apart, Asia-Pacific markets tracked the steep selloff in US markets on Thursday as investors fret over rising inflation and Ukraine war. Hong Kong’s Hang Seng index fell 2.25 per cent whereas shares of Chinese tech behemoth Tencent plunged over 6 per cent after report weak earnings call. Meanwhile, Nikkei 225 fell 1.75 per cent, South Korea’s Kospi dropped 1.34 per cent and Austalia’s ASX 200 slipped 1.61 per cent. Hawkish US Fed and unemployment data: With US consumer prices soaring at 8.2 per cent, the highest seen in four-decade, the US Fed is determined to tame rising inflationary pressure by increasing interest rates. In the latest remark, Fed Chief Jerome Powell reaffirmed his hawkish outlook, and said the US central bank will keep raising interest rates until there is a ‘clear and convincing’ evidence that inflation is in retreat. The next Federal Open Market Committee meet is scheduled between June 14 to June 15. Meanwhile, the unemployment rate in April stood at 3.6 per cent, just above the pre-pandemic low of 3.5 per cent. On the other hand, the total employment was over 1 million jobs, below February 2020 levels. RBI on rate hike mode: In-line with other global central banks, the RBI, too, has turned hawkish and is mulling steep rate hikes. According to the minutes of the surprise meeting held on May 4, most members of the monetary policy committee (MPC) argued for front-loading interest rate hikes in view of rapidly rising inflation during the off-cycle monetary policy review earlier this month. READ MORE Oil prices on the boil: After hitting seven-week high, Brent crude continued to hover above $110 a barrel mark after Russian supply was squeezed due to ban from several countries. Besides, data showed that China processed 11 per cent less crude oil in April amid tight Covid-19 lockdowns that also sent oil prices higher. Rupee in free-fall: The Indian rupee extended losses in early trade on Thursday as the currency exchanged hands at 77.74 per dollar. The rupee has dropped nearly 4 per cent this year as stronger dollar dented demand for emerging market currencies and heavy FII outflows dampened prospects. Relentless FII selling: Continued selloff by FII has added pressure on equity markets. FIIs continue to be net sellers for the eight straight month, dumping equities worth nearly Rs 38,000 crore in the month of May so far.