Key equity indices the Sensex and the Nifty fell nearly 3 percent on June 13 and extended their losses into the second consecutive session as investors sold off equities ahead of the US Federal Open Market Committee (FOMC) outcome on June 15 wherein the US Federal Reserve is expected to rate hike at least by 50 basis points.
A steep rate hike by the US Fed is expected as the US inflation numbers for the last month hit fresh 40-year high. As per a Bloomberg report, traders are betting the Federal Reserve will raise rates by 75 bps at least once in its next three meetings to cool the hottest inflation in four decades.
"Money markets are pricing 175 basis points by its September decision, implying two half-point and one 75 basis points hike, according to interest rate swaps tied to FOMC policy outcome dates. That’s upgraded from only fully pricing half-point hikes previously. The last 75 basis-point hike by the Fed was made in November 1994," the Bloomberg report said.
India's May month retail inflation print is due today and the RBI too may raise rates aggressively in its next few policy meets. The upcoming policy meet is in August.
Sensex suffered a loss of 1457 points, or 2.68 percent, to end at 52,846.70 while the Nifty closed the day at 15,774.40, down 427 points, or 2.64 percent.
In the 30-share pack Sensex, only one stock- Nestle (up 0.46 percent) - ended in the green. Shares of Bajaj Finserv (down 7.02 percent), Bajaj Finance (down 5.44 percent), IndusInd Bank (down 5.27 percent), Tech Mahindra (down 4.84 percent) and ICICI Bank (down 4.46 percent) ended as the top laggards.
The BSE Midcap index mirrored the Sensex, falling 2.73 percent while the smallcap index cracked 3.15 percent.
All sectoral indices bled on June 13, with BSE IT falling nearly 4 percent. BSE Metal, Teck, Realty, Bankex, Finance and Industrials indices fell more than 3 percent each.
As many as 213 stocks, including Bajaj Finserv, Bajaj Finance, Tata Steel, UltraTech Cement and RBL Bank, hit their 52-week lows.
The overall market capitalisation of BSE-listed firms dropped to ₹245.2 lakh crore from ₹251.8 lakh crore in the previous session, making investors poorer by ₹6.6 lakh crore in a single day.
Crude oil benchmark Brent Crude traded above the $120 a barrel mark while the rupee closed 20 paise lower at 78.04 per dollar.
“The market crashed with full force on the first day of the week, as benchmark indices slumped below their crucial levels on across-the-board selling pressure. There have been heightened concerns amongst investors that central banks will be more aggressive in the coming months to hike interest rate hikes in order to combat inflation, which will, in turn, hurt economic growth and put margins under pressure," Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities pointed out.
"Markets were also down due to continued strength in brent crude prices, 10-year bond yields rising to 3.20 percent from recent lows of 2.80 percent, and the expected CPI numbers. The fear and uncertainty were clearly visible in India's VIX, which is up over 15 percent at 22.50," he added.
Chouhan underscored that technically, if the Nifty breaks and closes below 15,700, it will be a major downside event for the market. In such a situation, the index would fall to the level of 15,500-15,400 in the short term. It is advisable to reduce a weak long position below the 15,700 level.
Now, investors will watch keenly the India May CPI data. Moreover, the US Fed meet outcome on June 15 would induce further volatility.
Ajit Mishra, VP - Research, Religare Broking said Nifty has almost retested March 2022 low i.e. around 15,671 and its breakdown would pave the way for further decline towards 15,450 levels.
"In case of a rebound, the 15,900-16,200 zone would act as a hurdle. We recommend using rebound to create shorts in the index until we see some sign of reversal. Stocks, on the other hand, are offering opportunities on both sides so plan accordingly," he added.
Disclaimer: The views and recommendations made above are those of individual analysts and not of MintGenie.