US inflation sends markets on a wild ride; FPIs pull out Rs 1,400 crore

Sensex swings 1,232 points before settling 224 points lower; FPIs pullout Rs 1,400 cr

Indian equities gyrated wildly on Wednesday as US inflation data for August raised the bets of a more aggressive hike by the US Federal Reserve (Fed). The Sensex dropped nearly 2 per cent on opening but recouped most of its losses by noon as stability returned to the global markets. In intraday trade, the index whipsawed 1,232 points as investors assessed the risks facing the global markets and whether the Indian markets can withstand them.

Sensex ended the session at 60,347, with a decline of 224 points, or 0.37 per cent. The Nifty50, on the other hand, ended the session at 18,004, a decline of 66 points or 0.37 per cent. A day earlier, the index had finished at its highest level in nearly eight months and less than two per cent shy of a new lifetime high.

The decline in Indian markets was comparatively muted when compared to the steep fall seen on the Wall Street on Tuesday. The S&P 500, on Tuesday, fell 4.3 per cent, its worst decline in more than two years. Major indices across Europe and Asia also ended the session in the red. The rout in US markets came after the consumer price inflation rose by 0.1 per cent as against expectations of a decline. The consumer price index rose 8.3 per cent year-on-year in August.

Investors were hoping that inflation would moderate and allow the US central bank to slow its pace of rate hikes. After the inflation figures, a section of investors is expecting that the Fed could raise the rates by even 1 per cent after two successive hikes of 0.75 per cent each.

Market experts said that Tuesday's inflation figures raised doubts about the efficacy of the previous two hikes in taming inflation and fuelled speculation about the Fed resorting to an even more aggressive monetary policy and the US falling into recession.

"Last night's US CPI print was a clear upside surprise versus consensus, both for headline and core inflation. This surprise rapidly exposed recent positioning away from the US dollar into risk assets,” said Jonathan Garner, chief Asia and emerging market equity strategist, Morgan Stanley, in a note.

Overseas investors sold shares worth nearly Rs 1,400 crore amid the global turmoil. Until Tuesday, they had pumped in over Rs 14,000 crore ($1.8 billion) into domestic stocks in September.

Strong FPI influx since July has helped the Indian market outperform most global peers over the past two months.

Experts attribute this outperformance to falling crude oil prices and India's position as a growing economy in a year of global economic distress.

"We fell the least amongst major markets. India's economic situation is far superior to the rest of the world. All our economic indicators are positive, whether it is GDP growth, bank credit cycle or tax collections. Moreover, global economic distress is leading to less demand for oil and a fall in prices. The only concern for India is the hit in exports. At least till the end of the year, Indian equities are likely to outperform global peers," said G.Chokkalingam, founder, Equinomics.
 

“Moreover, global economic distress is leading to less demand for oil and a fall in prices. The only concern for India is the hit in exports. At least till the end of the year, Indian equities are likely to outperform global peers”, he added.

Overall market breadth was mixed, with 1,843 stocks declining and 1,633 advancing. The India VIX index, an indicator of market volatility, rose 4.6 per cent and was at 18.27. Experts said the reading indicated concern but no panic.