The domestic equity market dropped almost two per cent in Monday’s intraday trade amid multiple triggers from domestic and global economies. Benchmark Nifty50 slipped below 17,000-mark, while the Sensex declined to trade near 57,000. The two indices touched the day’s low of 16,978.30 and 57,038.24.
From weak global cues, inflation projection to weakness in the rupee, there were many factors that triggered this sharp fall on Monday. We list key reasons that led to today’s downfall:
Weak global markets
The global markets have been trading volatile since the aggressive rate hike of 75 basis points by the US Federal Reserve earlier last week. On Friday, the weakness persisted in the US market as all major indices slipped in the red during closing. Dow Jones, Nasdaq and S&P 500 ended lower by 1.6%, 1.8 and 1.7% respectively. Meanwhile, Asian markets too were trading lower as Japanese Nikkei 225 declined 2.6%, Hang Seng Index fell 0.5% and Chinese Shanghai Composite dropped 0.6% around 12 pm on Monday. SGX Nifty took a hit of 300 points to trade near the 17,000-mark.
“The 75-basis point hike with hawkish commentary by the US Fed spooked the sentiments of global markets. Global markets are fearing a recession in the US and Europe, while inflation is still a concern,” said Santosh Meena, Head of Research, Swastika Investmart Ltd.
Profit booking in small cap and mid cap stocks
On Monday, the profit booking in midcap and smallcap stocks, which were witnessing good buying interest, was one of the major factors that pulled down the market. In Monday’s intraday trade, both Nifty Midcap and smallcap corrected by almost four per cent and more. Besides, Auto, metal and Realty, which declined between 3.5-4.5% were major sectors that dragged the market on Monday.
RBI monetary policy
After the US Federal Reserve hiked the interest rates, all eyes are on the Reserve Bank of India (RBI), which is slated to hold the monetary policy later this week. Anticipating a steep hike, the domestic market crumbled amid weak global cues on Monday.
“Global cues are expected to dominate this week as well, but RBI policy and September F&O expiry will lead to volatility in our market,” said Meena
Inflation & weakness in Rupee
The rupee declined in early trade on Monday to hit an all-time low of 81.52 against the US dollar, apparently due to strengthening of the American currency and risk-averse sentiment among investors. “We continue to scout for the upside target of 81.8 with downside marker placed at 80.7 for now,” said Anand James – Chief Market Strategist at Geojit Financial Services, on rupee outlook.
Meanwhile, S&P Global Ratings on Monday said inflation is likely to remain above RBI’s upper tolerance threshold of 6 per cent till the end of 2022. It projected India’s economic growth at 7.3 per cent in the current fiscal with downside risks. Earlier this month, Fitch Ratings slashed the growth estimate to 7 per cent for the current fiscal from 7.8 per cent pegged earlier. India Ratings & Research too had reduced its projections to 6.9 per cent from 7 per cent earlier.
Trend reversal in FIIs data
The FIIs have turned net sellers in the Indian cash market with a negative flow of Rs 2,445.82 crore so far as on September 23. It has remained a net seller in the past three days and sold equities worth Rs 461.04 crore on 21st September, Rs 2,509.55 crore on 22nd September a whooping Rs 2,899.68 crore during Friday’s sell-off, showed the exchanges data. FIIs have invested over Rs 50,000 crore in August.
Experts feel the current trend in the US market with rising bond yields hints that FPIs may stop infusing funds aggressively until the situation turns otherwise.
“The global macro construct is not favourable for equity markets in the short run. The dollar index above 113 and the US 10-year yield at 3.73 % is likely to aggravate FPI outflows which have been gathering momentum during the last three days,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.