Key equity indices the Sensex and the Nifty plunged over 3 percent each as concerns over aggressive rate hikes shattered the risk appetite of investors.
Many Asian stocks such as Japan's Nikkei and South Korea's Kospi also cracked nearly 3 percent each as a sharp rise in the US inflation rekindled worries about even more aggressive hikes by the Federal Reserve.
Besides, rising Covid cases in some cities of the country also added to the worries.
US inflation surged 8.6 percent last month year-on-year, faster than April’s year-over-year surge of 8.3 percent. This is the sharpest increase in the US inflation in over 40 years (since December 1981).
This sharp jump in the inflation print has shattered the hopes that the inflation had peaked and the US Fed might consider softer rate hikes. Now, the fears of aggressive rate hikes look real.
India's May month retail inflation print is due today and analysts are expecting it to remain above 7 percent.
Covid cases have been rising again for the past few weeks. As per the official data, quoted by Mint, 17 districts in the country, including seven in Kerala and five in Mizoram, are reporting a weekly Covid positivity rate of more than 10 percent, while in 24 districts, including seven in Kerala and four each in Maharashtra and Mizoram, the weekly positivity rate is between five and 10 percent.
Sensex opened at 53,184.61 against the previous close of 54,303.44 and touched the intraday high and low of 53,207.54 and 52,734.98, respectively, in trade so far.
Nifty opened at 15,877.55 against the previous close of 16,201.80 and touched intraday high and low of 15,886.15 and 15,749.90 respectively, in trade so far.
BSE Midcap and Smallcap indices also fell nearly 3 percent each. The selloff was widespread as all sectoral indices on BSE traded in the red, with bank, finance and IT indices falling more than 3 percent.
Experts are of the view that the new term trend of the market may remain negative.
"The near-term market trend is weak. The May US inflation print at 8.6 percent against the market expectation of 8.3 percent is likely to turn the Fed more hawkish with a series of 50 bp rate hikes taking the terminal rate by mid-2023 above 3.5 percent. Such a scenario would be negative for risky assets like equity, particularly in the context of declining global growth. The Indian market will stabilize only when the US market stabilises. Therefore, investors may wait and watch till clarity emerges on the market trend," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Vijayakumar, however, added that one silver lining is the 7.1 percent increase in IIP which indicates that the Indian economy is doing well. "Therefore, long-term investors can use the dips in the market to buy high-quality economy-facing stocks like capital goods, banking, telecom and export segments," he said.
The focus of investors is now shifted to the US FOMC outcome on June 15. Besides, the progress of monsoon, the trajectory of crude oil prices and macroeconomic prints will also influence the mood of the market.
"The equity market is likely to be volatile till the time global central banks, especially the Fed, are done with tightening. However, this does not rule out the possibility of periodic relief rallies in the interim. As and when the Fed moves to an easing framework, the market is likely to recover and there is a possibility of meaningful rallies at that point in time. It remains to be seen when the central banks will end tightening and start easing," said S Naren, ED & CIO, ICICI Prudential AMC.
"We believe markets will continue to be volatile in the near term. So investors should focus on largecaps and stick to mid and smallcap investing via SIPs only.," Naren added.
Disclaimer: The views and recommendations made above are those of individual analysts and not of MintGenie.