Home / Markets / Stock Markets /  Stocks tank amid global rout, rupee sinks to an all-time low

MUMBAI : Indian stocks tumbled, the rupee hit a record low, and bond yields jumped as fears that the US central bank may pursue a more aggressive rate-hike path following Friday’s faster-than-expected inflation reading rattled investors worldwide.

Benchmark indices Nifty and Sensex plunged by 2.64% and 2.68%, respectively, on Monday, the sharpest drop since early March, while 10-year government bond yields climbed to their highest since January 2019, hitting a high of 7.602%. The Indian currency breached the 78 to a dollar mark for the first time, ending trading at 78.03. The rupee weakened to a record low of 78.28 to a dollar in intraday trading.

Fear rules
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Fear rules

Investors fretted about the US inflation report, with traders now expecting the Fed to take more aggressive action to rein in runaway inflation, which could stifle economic growth prospects across the world. US consumer prices rose 8.6% in May, the fastest increase since 1981.

“US bond yields are now trading above 3.15% levels, indicating the aggressive rate hike expectation by the Fed in the upcoming FOMC (Federal Open Market Committee) meeting, scheduled this week. The market is now eyeing the outcome of the meeting and how the central bank influences the path of interest rates trajectory to maintain growth and inflation dynamics," said Naveen Kulkarni, chief investment officer, Axis Securities.

The nervousness put global markets under pressure as well, with Asian indices seeing a sharp selloff. Japan’s Nikkei and Hong Kong’s Hang Seng fell 3%, while European stocks lost 1.6-2.33%. “Asian stocks sank as red-hot inflation reignited worries about even more aggressive US interest rate increases while new mass covid-19 testing in China sparked concerns of more crippling lockdowns. European equities slid to the lowest level since early March as investors worried that surging inflation would fuel more aggressive monetary tightening, increasing risks of a recession," said Deepak Jasani, head of retail research, HDFC Securities.

The selloff in global stocks also sent the S&P 500 down more than 20% from its January record into bear market territory. Futures for the S&P 500 fell 2.4% in early trading on Monday.

While the upcoming Fed meeting keeps equity investors on their toes, currency markets are also expected to remain under intense pressure as investors junk emerging market currencies in favour of the dollar. As a result, experts expect the Reserve Bank of India to continue intervening in the currency markets to support the rupee.

“RBI intervened in the market on Monday, both in spots and forwards. Till the outcome of the US Fed meeting is announced on Wednesday, there can be significant upward pressure on USD-INR. The odds for a 75-basis points hike are rising, which is positive for the US dollar. RBI will ensure that pace of depreciation remains slow and will try to cap the rupee at 79," said Anindya Banerjee, vice-president, currency derivatives and interest rate derivatives at Kotak Securities Ltd.

“Also, as the yields are rising globally, Indian bonds will also be affected. If RBI intervenes in the bond market, it can hurt the rupee," he added.

With the absence of any positive triggers and several global headwinds at play, experts see equity markets continuing to remain volatile in the near term.

“Near-term market outlook remains weak on the back of twin global headwinds of high inflation and increasing interest rates. Several global central banks are scheduled to meet this week to decide on their monetary policy, which will keep the markets busy. Further, on the domestic side, depreciating INR and consistent FII (foreign institutional investor) selling are aggravating the pressure on markets," said Siddhartha Khemka, head of retail research, Motilal Oswal Financial Services Ltd.

The volatility indicator, India VIX, jumped 13% on Monday, indicating rising nervousness among investors.

ABOUT THE AUTHOR

Swaraj Singh Dhanjal

" Based in Mumbai, Swaraj Singh Dhanjal is responsible for Mint’s corporate news coverage. For the past eight years he has been writing on the biggest deals in private equity, venture capital, IPO market and corporate mergers and acquisitions. An engineer and an MBA, he started his journalism career in 2014 with Mint. "
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