Sensex swings 1,200 points on inflation fears; Bharti Airtel falls over 3%

India’s benchmark indices fell on Tuesday amid rising bond yields and crude oil prices.

The Sensex plunged as much as 1,242 points from the day’s high before recouping more than half the losses in the last hour of trade. The index ended the session at 59,667 with a loss of 410 points, or 0.68 per cent. The Nifty, on the other hand, closed at 17,748, dropping 106 points, or 0.60 per cent.

Rising crude oil prices have stoked inflation worries. Brent crude oil, a benchmark for over three-quarters of the world's traded oil, was hovering near $80 a barrel -- the highest level since October 2018. Some analysts have predicted that it could hit $90 a barrel by the end of the year.

“Crude oil above $80 is a negative for the economy. Because of our import bills, the rise in crude oil prices will negatively impact public finances and inflation. Moreover, the markets have priced in the best outcome in earnings, public finances, and interest rates. Any negative news could shock the markets as it happened today,” said U R Bhat, co-founder and director, Alphaniti Fintech.

The 10-year US bond yield was at 1.52 per cent on Tuesday, the highest in three months. The yield rose after investors started to price in the US Federal Reserve's decision to reduce monthly bond purchases as early as November. On Monday, US Federal Reserve Chairman Jerome Powell said the inflation test for tapering Fed’s bond purchases had been met.

The prospect of interest rate hikes by central banks of major western economies is also worrying investors. On Monday, the Bank of England's chief said there was a growing case for hiking interest rates. The Norges Bank, of Norway, recently became the first major western central bank to raise interest rates since the onset of the Covid-19 pandemic.

Concerns that the ongoing energy crisis in China could impact its economic growth further hit investor sentiment. Goldman Sachs on Tuesday lowered its economic forecast for China. The power crisis has hit millions of homes and halted production in factories, including suppliers to firms like Apple and Tesla.  

The crisis is attributed to disruptions in coal supply due to the pandemic, emission targets, and a drop in imports amid a dispute with Australia. Investors are also monitoring developments in Evergrande.

Analysts said investors were booking profits in IT stocks after they gave good returns this year. The BSE IT index has gained 42 per cent on a year-to-date (YTD) basis. Now, investors will be keenly watching some of the high-frequency economic data, due later this week, they said.

“The markets are likely to consolidate at higher levels given the sharp run-up in the past few weeks. They are increasingly witnessing rotation from outperforming sectors to undervalued stocks. A lot of macro data points will be released this week. PMI data across the US, Europe, and China, along with the US and UK’s GDP data and Japan's MPC, which would keep the markets busy,” said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services.

The market breadth was negative on Tuesday, with 1,755 stocks declining and 1,502 advancing. Two-thirds of the Sensex stocks fell. Bharti Airtel was the worst-performing Sensex stock and declined 3.7 per cent. Realty and telecom stocks fell the most, and their sectoral indices declined 3.02 and 2.6 per cent, respectively.