Inflation impact on stock market: Zerodha founder explains today’s selloff

Zerodha founder Nikhil Kamath in a tweet today highlighted the risk posed by inflation to the equity markets, including India. Indian stock markets fell sharply today, tracking a global selloff, as investors dumped risky assets on worries over stubborn inflation and economic slowdown. The Sensex was down over 1000 points while Nifty slumped 2% to 15,900 levels. 

Zerodha founder Nikhil Kamath attributed last night's fall on Wall Street to lower margins for retailers (Target, Lowes, etc). “Bound to happen in India, inflation will eventually lead to lower margins, or passing on higher costs will taper demand,” he added. 

Overnight, US stocks posted the biggest daily drop in almost two years as investors assess the impact of higher prices on earnings and prospects for monetary policy tightening on economic growth.  The selloff sent the S&P 500 down 4%, the most since June 2020, with the plunge in consumer shares surpassing 6%. Retailer Target Corp. tumbled more than 20% in its worst rout since 1987, after trimming its profit forecast due to a surge in costs. Shares of retailers from Walmart Inc. to Macy’s Inc. were caught in the downdraft. 

MSCI's broadest index of Asia-Pacific shares outside Japan today snapped its four-day winning streak to slump 2.3%.

Shares of ITC rose 1.3% to be the sole gainer in the Nifty 50 index after the cigarettes-to-hotel conglomerate on Wednesday reported an 11.8% rise in its March-quarter profit.

Prashanth Tapse, Vice President (Research), Mehta Equities Ltd, said that deteriorating macro sentiments such as soaring inflation, recession fears, and the prospect of the Federal Reserve getting even more hawkish will continue keep Indian markets on the edge. 

"Another main reason for the pessimism can be attributed to relentless selling from the FII camp. FIIs continue to be net sellers for the 8th straight month since October 2021. They have sold shares worth Rs. 37,937 crore in the month of May so far. Technically, the sell-off on Dalal Street will gain steam if Nifty slips below 15971 mark. Below the same, the index could swiftly slip to 15671 mark. Bulls have a chance to fight only above the 16411 mark,” he added. (With Agency Inputs)