Dalal Street on Monday saw a mayhem after the domestic stock markets plunged sharply amid fears of rising inflation in India and overseas.
Since the opening bell, the two key equity benchmarks – Sensex and Nifty – tanked. Apart from the stock market, the rupee also witnessed a bumpy ride due to a sharp rise in inflation in the US, and the Indian currency hit the 78 mark to 78.28 against the dollar, an all-time low.
Meanwhile, the 30-share BSE Sensex tanked 1,776 points intra-day before closing at 52,847, down 1,457 points (2.68 per cent), while the Nifty50, on the other hand, dropped 427 points (2.64 per cent), to end at 15,774. The index touched an intra-day low of 15,684 during the trade.
With the Sensex tumbling over 1,500 points, equity investors became poorer by nearly Rs 6 lakh crore on Monday.
What led to the market crash?
Equity markets across the globe are witnessing high volatility. The sell-off across sectors started mainly after the inflation in the US spiked to four decades high of 8.6 per cent in May.
This has led to aggressive rate hikes by the US Federal Reserve to tame the surging inflation. Another rate hike by the US Fed is due on Wednesday. Investors worldwide are on a selling spree as they are anticipating another sharp rate hike.
According to news reports, US futures are also down by 1 per cent, while the market would continue to remain cautious ahead of various central banks meetings this week.
On Monday, India’s Consumer Price Index (CPI)-based inflation eased to 7.04 per cent in May from April’s near-eight-year high of 7.79 per cent, thanks to a favourable base effect. But, inflation stayed well above the Reserve Bank of India’s (RBI’s) upper tolerance limit for a fifth consecutive month. The investors are spooked by the inflation numbers and are expecting another rate hike by the RBI.
According to the data from various news agencies, India’s yield on 10-year benchmark bond has jumped by 7 basis points to 7.59 per cent on Monday.
Thus the global as well as the domestic woes are hurting sentiment in the Indian stock market. Simultanously, the ongoing conflict between Ukraine and Russia has impacted heavily on the global economy, causing supply disruptions and surging crude oil prices. The world is facing a cascading effect of the war, with commodity price rise, inflation, and ultimately a recession.
V K Vijayakumar, chief investment strategist at Geojit Financial Services told the PTI, “The near-term market trend is weak. The May US inflation print at 8.6 per cent against the market expectation of 8.3 per cent is likely to turn the Fed more hawkish. Such a scenario would be negative for risky assets like equity, particularly in the context of declining global growth. The Indian market will stabilise only when the US market stabilises.”