Indian indices snapped their three-day gaining streak to fall around 1.5 percent on Friday following a massive sell-off in global peers after US consumer price inflation data came in higher than expected.
The Sensex sank as much as 1,012 points in intraday deals to 57,914.10 while the Nifty lost as much as 303 points to 17,303. However, later in the day, the markets trimmed minor losses to end around 1.3 percent lower.
The Sensex settled 773 points lower at 58,152.92 while the Nifty fell 231 points to end at 17,374.75. Broader markets underperformed with the midcap and smallcap index down over 2 percent each.
On Thursday, markets cheered after RBI kept policy rates unchanged and decided to continue its accommodative stance for as long as necessary in the backdrop of elevated inflation.
Let's look at the key reasons which led to today's sell-off
US CPI Inflation: US Inflation soared to its highest rate in four decades to 7.5 percent in January 2022 as compared to the same month last year. This is the steepest YoY increase in US CPI inflation since February 1982. Shortages of supplies and workers, heavy doses of federal aid, ultra-low interest rates and robust consumer spending combined to send inflation accelerating in the past year, Reuters stated.
Weakness in global markets: Global markets crashed post US inflation numbers on fears that the US Federal Reserve will hike rates more aggressively to fight the surging inflation. Overnight, Dow Jones Industrial Average ended 1.5 percent lower while S&P 500 was down 1.8 percent and the Nasdaq Composite 2.1 percent. The US stock futures were also trading lower during the day. Meanwhile, Asian peers also witnessed heavy sell-off further dragging the market sentiment.
Hawkish comments by US Fed: St. Louis Federal Reserve President James Bullard said on Thursday that he has become "dramatically" more hawkish in light of the hottest inflation reading in nearly 40 years, and he now wants a full percentage point of interest rate hikes over the next three US central bank policy meetings, Reuters reported. The hawkish comments by the US Fed officials added on to the already cautious investors and weakened sentiment.
Weakening Rupee: The domestic currency weakened to hit 75.38 per dollar as the US currency and US treasury yields strengthened after post the US inflation numbers as well as hawkish comments by Fed official. Continued selling pressure by foreign investors also added to the weakness in the domestic currency as well as Indian markets.
Domestic sell-off: Back home, all sectors witnessed massive decline with none being able to support the benchmarks. Even major heavyweights gave in to the sell-off in the markets. Nifty IT fell the most down 2.7 percent. Three of the top worst-performing stocks on Nifty included IT stocks - Tech Mahindra, Infosys, and HCL Tech.
Meanwhile, Nifty Bank, Nifty Fin Services, Nifty Auto shed over a percent each. Other heavyweights including HDFC, ICICI Bank, Kotak Bank, SBI, etc also contributed to the decline in Indian markets.