Sensex crashes 1,100 points: Top 4 factors rattling investors' sentiment

US inflation data, possibility of aggressive rate hikes, record low rupee, and intense selloff by foreign portfolio investors are among the key factors that thumped stocks lower

Bears tightened their grip on Dalal Street on Thursday as intense sell-off extended into fifth day in a row. The benchmark S&P BSE Sensex slumped about 1,158 points and closed at 52,930.31. The Nifty50 index, meanwhile, closed at 15,808 levels.

Moreover, broader markets traded tepid, too, as Nifty Midcap 100 slipped below 2 per cent whereas Nifty Smallcap 100 was down over 1 per cent.  Sectorally, all the key indices drowned in a sea of red with metal and public sector banks bearing the brunt of the sell-off.
 

According to analysts, the possibility of aggressive rate hikes by the US Federal Reserve (US Fed), coupled with prospects of recession in 2023, have rattled investors. 
 

Besides, rupee's depreciation to an all-time low and heavy outflow by foreign portfolio investors (FPI) further roiled investor sentiment. 
 

"With dollar index at 104, which is expected to strengthen further, FPIs are likely to continue selling till Indian valuation becomes attractive. Even though DII buying is more than FPI selling now, that is not enough to lift sentiments in the market since the macro headwinds are strong," said Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
 

Meanwhile, investors are also eyeing India's inflation data for April due later today, which further pressured the stocks.

As an investment strategy, Ajit Mishra, V-P - Research at Religare Broking said that investors can use this correction to buy high-quality stocks as valuations seem favorable. "We suggest investors to start nibbling on select technology and banking stocks," he added.
 

Here are top four factors that drove Thursday’s fall:
 

US inflation data: US CPI accelerated to 8.3 per cent from a year-ago period, cooling off mildly from March 2022 peak of 8.5 per cent. Nonetheless, annual inflation continues to remain at its highest level since early 1982.

However, despite minor relief in inflation, the Nasdaq dropped more than 3 per cent in trade on Wednesday whereas Dow Jones slipped for fifth straight day. This is because core CPI, which does not include food and energy prices, gained 6.2 per cent compared to expectations of 6 per cent. On a monthly basis, headline CPI rose by 0.3 per cent and core rose 0.6 per cent. It signaled that inflation may be peaking but price pressures will likely persist.

India's CPI data and rate hike fears: According to a Reuters' poll, the country's retail inflation likely accelerated to 18-month high of 7.5 per cent in April, driven by rising fuel and food prices. Analysts expect inflation levels to stay above RBI's upper tolerance limit for the fourth consecutive month. READ MORE
 

Against this backdrop, investors are rattled with rate hike concerns. Analysts expect the RBI to raise inflation projections in the Monetary Policy Committee meet next month and also consider 25 basis point rate hikes to tame inflation. READ MORE
 

“The recent correction after RBI's rate hike has made domestic markets trade in tandem with global markets. Expectation of upbeat monsoon data and an additional 25 bps by RBI in June meet can further consolidate markets in the near-term," said Mishra.
 

Rupee falls to all-time low: The rupee touched an all-time low against the US dollar on Thursday amid rising inflation worries and aggressive rate hike by US Fed. The rupee tumbled to 77.59 versus US dollar, plunging to record low second time this week.

Meanwhile, the dollar index traded higher by 0.81 per cent at 103.95, which further accentuated fears of aggressive selling by FPIs.
 

Intense FPI selloff: FPIs have continued their selling spree for seven straight months now. According to NSE data, FPIs sold Rs 3,609.35 crore on May 11, 2022 whereas domestic investors bought Rs 4,181.2 crore worth of equities. Further, a weaker rupee erodes FPI returns for Indian equities.