Indian equity markets wiped out $127 billion investor wealth in just two days

• Indian benchmark bled more than 1,400 points as investors fear more aggressive interest rates hike by the Fed after the US consumer inflation hit 40-year high.
• High price of an essential commodity, crude oil, is another factor concerning investors about a slowdown in economic growth.
• Banks, metals, FMCG and real estate witnessing the highest selling of shares.

The Indian benchmark indices — Sensex and Nifty — tumbled by over 1,400 and 400 points respectively today. However, last Friday too ended in the red as they both lost 1,000 and 270 points.

Both these sessions shaved off ₹10 lakh crore ($127 billion) of investor wealth.

“The market crashed with full force on the first day of the week, as benchmark indices slumped below their crucial levels on across-the-board selling pressure. There have been heightened concerns amongst investors that central banks will be more aggressive in the coming months to hike interest rate hikes in order to combat inflation and put margins under pressure,” said Shrikant Chouhan, head of equity research at Kotak Securities.

Today Sensex closed 2.68% lower than what it was after falling as much as 4% during the day as it was spooked by heightened inflation in the US markets that could result in aggressive interest rate hikes by the Fed.

However, the US inflation rate which reached 8.6% in May at a 40 year high and the steepest rise in consumer prices since December 1981.

Indian inflation numbers is the next most important event
Unfortunately, there are more events ahead that could lead to more selling pressure — like the domestic consumer inflation data due later in the day.

“On the domestic side, India’s inflation data is due today on account of which nervousness is likely to be seen in the market. Apart from these, the market would continue to remain cautious ahead of various central banks meetings this week,” Hemang Jani, head equity strategy at Motilal Oswal Financial Services.

Chouhan believes that there could be more pain ahead. “Technically, if the Nifty breaks and closes below 15700, it will be a major downside event for the market. In such a situation, the index would fall to the level of 15500-15400 in the short term. It is advisable to reduce a weak long position below the 15700 level. Also, Bank Nifty could drop to 32000 level if it ends below 33500,” he said.

Other Asian equity markets saw a huge sell off on tensions over rising borrowing costs. Hong Kong witnessed the steepest fall of 3.39%, followed by Tokyo which fell by 3.01% and Taiwan by 2.36%.

The value of the Indian currency, rupee, also kept depreciating on pressure of high inflation. Indian rupee spot touched a new record low of 78.28, today.

“Sharp sell-off in equity markets coupled with surging US treasury yields added to the weakness in Rupee. We might see more weakness ahead of the FOMC meeting on 15th June, where the Fed is expected to hike rates by 50 bps and showcase a more aggressive tone. However, runaway depreciation might not happen amid RBI intervention,” said Jigar Trivedi, research analyst- commodities & currencies fundamental at Anand Rathi Shares & Stock Brokers.


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