Indian markets over 2.5 percent on Monday following a sell-off in the global peers as US inflation at 4-decade high and concerns regarding an aggressive rate hike spooked investors. The Sensex ended 1,457 points lower at 52,847 while the Nifty lost 427 points to settle at 15,774.
Broader markets also faced the brunt of the weak market sentiment with the Nifty Midcap index down 2.9 percent and the Nifty Smallcap index down 3.9 percent. All sectors were also in the red with Nifty IT dragging the most, down 4 percent, followed by Nifty Metal, Nifty Bank, and Nifty Realty down over 3 percent each.
"Weak Global Cues ahead of the Fed meet painted benchmark indices here in a sea of red as street awaits CPI data today on a day when 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 and the Dollar Index at 104 seem to weigh heavily amidst relentless FII selling despite local redemptions in May coming in at a two-year low," said S Ranganathan, Head of Research at LKP Securities.
Five reasons why Indian markets tanked in today's trade:
US inflation: US inflation surged 8.6 percent last month from a year earlier, faster than April's year-over-year increase of 8.3 percent the Labor Department said Friday. The new inflation figure, the highest since 1981, will heighten pressure on the Federal Reserve to continue raising interest rates aggressively.
Fear of aggressive rate hikes: On the back of the latest US inflation data, most experts believe that the US Fed will continue its aggressive rate hikes in an effort to curb inflation in their 2-day Federal Open Market Committee (FOMC) meet due on Wednesday, June 15. According to a poll by Reuters, the US Fed is likely to hike rates by 50 basis points in June and July, with chances of a similar hike in September. The rate hike fears sent US 10-year treasury yields above 3 percent for the first time in three years.
Weak Rupee: Another major reason behind the massive decline in Indian markets was the weakness in the Indian currency. The rupee fell to a record low of 78.15 against the US dollar on Monday on stronger demand for the dollar, fear of rising interest rates by the US Fed, and volatile crude oil prices.
May CPI data: India is also going to release inflation figures for the month of May on June 13. As per Reuter's poll, economists expect the consumer price index (CPI) to slip to 7.10 percent in May from 7.7 percent in April. However, CPI remaining above 6 percent, RBI's upper band, will keep investors cautious of more aggressive rate hikes back home as well as following the footsteps of the US Fed.
Consistent FII outflows: Persistent selling by foreign portfolio investors (FPIs) since October last year has also kept the investor sentiment weak back home. FPIs have sold Indian equities worth ₹13,888 crore worth of equities so far, just in June. Overall in 2022, the FPIs have sold Indian equities for ₹1,81,043 crore.