The Indian benchmark indices, the S&P BSE Sensex and the Nifty50, joined a global sell-off and plunged over 2% in early trade on Monday, amid broad-based selling as fear of aggressive rate hike by central banks globally spooked investors’ sentiments. The Indian rupee also hit a fresh lifetime low due to strong demand for the U.S. dollar after the Federal Reserve signalled more rate hikes in the coming months. The Volatility index, India VIX, jumped more than 9% to 19.92 points, indicating the heightened nervousness among traders amid fear that aggressive rate hikes will dampen the demand and cause an economic slowdown.
The BSE Sensex declined as much as 1,466 points, or 2.49%, in the opening trade to 57,367.47, against Friday’s closing levels of 58,833.87. Similarly, the broader NSE Nifty fell 393 points, or 2.23%, to hit a low of 17,166.20 marks in the early trade on Monday. The market sentiment was dented by weak cues from Asian peers and losses in U.S. stocks over the weekend after Federal Reserve Chair Jerome Powell reiterated a hawkish tone to combat inflation.
Paring some of the early losses, the 30-share Sensex was trading 770 points lower at 58,063 at the time of reporting, with 25 of its 30 constituents flashing in red. The Nifty50 was quoting at 17,341, down 218 points, with 39 of 50 shares floating in negative terrain.
Information technology (IT) stocks led the fall on the BSE Sensex, dragged down by Tech Mahindra, which dropped 4.6%. Infosys, Wipro, HCL Technologies, and Tata Consultancy Services were among other notable losers, falling between 2% and 4%. On the gaining side, Hindustan Unilever Ltd. (HUL) topped the chart by rising nearly 1%, followed by Nestle India, Maruti Suzuki India, Reliance Industries, and UltraTech Cement.
Shares of Reliance Industries were trading marginally higher, reversing opening losses of nearly 2%, ahead of its 45th Annual General Meeting (AGM) scheduled later today. The oil-to-telecom conglomerate is likely to make announcements regarding the listing of Jio Platforms and Reliance Retail, while investors will closely watch the company’s plan regarding new energy business and roll out of 5G services. The AGM will begin at 2 pm today with a speech by chairman Mukesh Ambani and other key members.
Here are three factors that dragged market the lower on Monday:
U.S. Federal Reserve’s hawkish comment
The sell-off in global equities, including Indian indices, were triggered by the U.S. Federal Reserve Chair Jerome Powell’s hawkish comments that the central bank would raise rates as high as necessary to tame inflation, raising fresh concerns about the tight monetary conditions. Powell’s comments have raised the chances of another 75 basis points interest rate hike for the third straight month in its upcoming September 20-21 policy meeting. Besides, the ongoing Ukraine-Russia and fresh tensions between U.S. and China on the Taiwan issue also impacted global equity markets.
Record slump in rupee
The Indian rupee touched a new low against the U.S. dollar on Monday after Powell said the U.S. economy will need tight monetary policy "for some time" to ease inflationary pressure on the economy. A stronger U.S. dollar, against a basket of currencies, including rupee, soared the foreign investors’ appetite for Indian assets. The rupee hit a new low of 80.14 against the greenback in the opening trade, breaching its previous lifetime low of 80.06 per dollar on July 19. The domestic currency had closed at 79.87 per dollar on Friday after the Reserve Bank of India’s market interventions through dollar sales.
The fear of possible recession in the global economy has increased as the economies across the world have slowed down due to aggressive rate hikes by central banks globally to control rising inflation. The growing concerns that central banks’ hawkish policy stance to curb inflation may push the global economy into recession acted as a negative catalyst for the markets.
The market analysts fear that aggressive rate hike by the U.S. central bank would push the economy into recession, which is already battling with low consumer and businesses spending in the backdrop of boiling inflation, which touched a four-decade high of 9.2% in June. The Federal Reserve is expected to raise interest rates by another 75 basis points (bps) for the third straight month in its upcoming September 20-21 policy meeting. The central bank has already hiked rates by 150 bps in the last two meetings, which is the highest since the early 1980s.