Home / Markets / Stock Markets /  Stocks tumble, Rupee at record lows as global factors weigh

Indian markets witnessed intense selling pressure on Friday tracking global peers as investors expressed nervousness over the rate hike guidance of the European Central Bank, upcoming U.S. inflation data. Additionally, rising crude prices, FII selling and rising US treasury yields meant that the Rupee slipped to fresh lows. The Sensex and the Nifty closed 1.84% and 1.68% lower on Friday.

Dr Joseph Thomas, Head of Research, Emkay Wealth Management said that “The equity market across market caps and sectors traded lower on account of a number of proximate factors, which are mainly global factors. The shutdown of Shanghai once again, the prospects of lower global economic growth, as also the expectations on some of the critical numbers expected like the US and India CPI numbers are factors that have infused some gloom into the market terrain, added Thomas.

Investors showed anxeity about the US Fed’s meeting that will take place next week. Though 50bps rate hikes is anticipated, the Fed’s decision also hinges on latest US inflation numbers, keeping investors cautious ahead of the event, said, analysts. In the interim, the US 10-year treasury yield again moved above 3%. Further, the European Central Bank has already decided to end a long-running stimulus scheme and would deliver next month its first interest rate hike since 2011 followed by a larger change in September, which kept investor sentiments under check.

Digging deeper
View Full Image
Digging deeper

As these global factors weighed, from India’s perspective, the inching up of Brent prices is adding to the discomfort. Brent moved to $127.95 a barrel on Friday which is substantially higher than close to $100 levels about a month back. Foreign Portfolio Investors (FPI) continue selling and are putting pressure on Rupee, which is declining regularly to fresh lows.

The Indian rupee slumped to a new record low of 77.87 against a dollar on Friday.

Rising real rates in the US due to Fed’s faster rate hikes, slowing global growth and rising oil prices are driving money towards the US Dollar and causing Dollar to strengthen against most currencies, including the Indian Rupee, said Anindya Banerjee, VP, Currency Derivatives & Interest Rate Derivatives at Kotak Securities Ltd

U.S. benchmark bond yields being pushed higher due to aggressive policy rate hikes is also pushing the Dollar higher. Sriram Iyer- Senior Research Analyst at Reliance Securities, said that oil could continue to remain elevated and weigh on the Rupee.

The dollar is getting support at lower levels ahead of the US inflation number being released on Friday and the FOMC policy statement that is scheduled next week, said analysts. “The expectation is that the Fed could continue to raise rates and maintain its hawkish stance and we expect the USDINR (Spot) to trade with a positive bias and is gradually headed towards 78.50 levels," said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services

The strengthening of the Dollar Index is impacting the rupee and a higher rupee is not good for the Indian economy. The country remains dependent on imports to meet the crude requirements. Higher crude also impacts the earnings of most corporates facing the heat of higher costs. Unsurprisingly all this is adding to volatility in the equity markets.

“Current elevated crude prices aggravate currency impact on the economy due to higher import bill and continued weakening of the rupee would continue impacting Indian equity markets" said Mitul Shah, Head of Research at Reliance Securities.

Though Rupee movement, Crude prices, inflation, commodity price movement and Central bank measures are critical factors for market performance over the near to medium term, in the meanwhile progress on Monsoon will be watched to cool food inflation, said experts. On the flip side, the rising number of covid can be a dampener for the sentiment.

“The RBI policy announced this week put the focus on normalization of liquidity and withdrawal of accommodative policy, both of which may have a negative impact on the markets in the coming weeks," said Thomas of Emkay Wealth.

Markets will continue to take cues from the global markets in absence of any major domestic event. “First, participants will react to the US inflation data and upcoming macroeconomic data (IIP, CPI & WPI) will also be in focus," said Ajit Mishra, VP - Research, Religare Broking Ltd

Ujjval Jauhari
Ujjval Jauhari is a deputy editor at Mint, with over a decade of experience in newspapers and digital news platforms. He is skilled in storytelling, reporting, analysing and writing about stocks, investment ideas, markets, corporates and more. He is based in New Delhi.
Know your inner investor Do you have the nerves of steel or do you get insomniac over your investments? Let’s define your investment approach.
Take the test
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Recommended For You

Get the best recommendations on Stocks, Mutual Funds and more based on your Risk profile!

Let’s get started
Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout