Nifty drops 5% in five sessions to 11-month low; Sensex ends 153 pts lower

Rate hike fears keep investors on tenterhooks as they await Fed policy

The benchmark indices fell for a fifth day on Tuesday as concerns about aggressive rate hikes and their economic impact continued to rattle investors. 

The benchmark Sensex made some gains during the session but could not hold on to them and ended at 52,693.57, with a decline of 153 points, or 0.3 per cent. The Nifty50, on the other hand, ended the session at 15,732, a drop of 42 points or 0.27 per cent. After five sessions of losses -- during which the Nifty has declined 780 points, or 4.73 per cent -- the 50-share index ended at its lowest level since July 28, 2021.

Surging inflation across the globe has forced central banks to embark on aggressive monetary tightening and interest rate hikes. The sell-off this week was triggered by the US inflation, which reached 8.6 per cent in May, the highest in 41 years.

The 10-year US bond yield traded at 3.2 per cent on Monday, the highest since November 2018. Investors are apprehensive that the rate hikes by central banks may push economies into recession and are selling risky assets.

On Tuesday, foreign portfolio investors (FPIs) sold shares worth Rs 4,500 crore, taking their month-to-date selling tally past the $3-billion mark.

The US Federal Reserve will meet on June 14 and 15 and is expected to raise interest rates by 50 basis points. But the hotter-than-expected inflation data has fuelled speculation that the US central bank may consider a 75-basis point hike. Some experts have even suggested a 100-basis point hike.

The Federal Reserve chief, Jerome Powell, has acknowledged that the unemployment rate may rise a bit. And, the central bank may only be able to provide a "softish" landing for the economy, he said.

"The US Fed outcome, along with its commentary on Wednesday, would set the tone for the near-term market direction. The global high inflationary environment, fresh curbs in China, and rising crude oil prices are likely to keep the markets under pressure for a while. On the domestic front, persistent sell-off by FIIs, coupled with a weak rupee, is further dampening investors' risk appetite,” said Siddhartha Khemks, head of retail research, Motilal Oswal Financial Services.

India's wholesale price inflation numbers were at 15.8 per cent (YoY) in May -- the highest in three decades, official data revealed on Tuesday. The consumer price inflation numbers for May, released on Monday, came in at 7.04 per cent. It was the fifth straight month when retail inflation was above RBI's medium-term target of keeping consumer price rise at 4 per cent (+/-2).

"The domestic market restrained from heavy sell-off as the CPI data moderated on a month-on-month basis, and this had a calm down effect amidst global volatility. However, elevated WPI data continued to dominate the broad market, which is cautiously awaiting tomorrow's outcome of Fed policy. Earlier the global market was anticipating a 50-bps hike but now is worried about a higher rate hike due to a persistent US inflation," said Vinod Nair, head of research, Geojit Financial Services.

The market breadth was weak, with 1,532 advancing and 1,782 declining. Half the Sensex constituents dropped. Reliance Industries declined 1.3 per cent and was the most significant contributor to Sensex losses. Energy stocks declined the most, and its sectoral index fell 1.2 per cent on the BSE.

Tata twins in good and bad list
 

The benchmark Nifty on Tuesday ended at its lowest level since July 28, 2021. While the index is currently at the same level it was almost 11 months ago, several of its components have seen huge variation in their stock performance.

Cement, Pharma and metal stocks are notable underperformers, while state-owned companies such as NTPC, Power Grid, Coal India and ONGC have outperformed with over 30 per cent gains.

Index heavyweights Reliance Power and ITC too have supported the market with gains of 29 per cent and 27 per cent respectively, since July 28.