Bears tighten grip: Sensex crashes 1,000 pts on mounting inflation worries

FPIs sell shares worth Rs 4,000 crore; US inflation hits new 4-decade high

Indian markets slumped along with global peers on Friday amid nervousness ahead of the release of US inflation data. The Sensex closed at 54,303, down 1,017 points, or 1.84 per cent — the most since May 19, while the Nifty50 index ended the session at 16,202 with a decline of 276 points, or 1.7 per cent. Both the indices dropped over 2.5 per cent during the week, ending their three-week winning streak.

Foreign portfolio investors (FPIs) sold shares worth nearly Rs 4,000 crore on Friday as the rupee hit a fresh low against the US dollar. After pulling out nearly Rs 40,000 crore from the markets in May, FPIs have sold shares worth nearly Rs 20,000 crore so far this month.

Data released after Indian market hours showed that US consumer inflation climbed to a new four-decade high of 8.6 per cent in May as surging energy and food prices moved higher. The annual rate of inflation has soared globally in recent months amid supply disruptions, prompting central banks to aggressively tighten monetary policy.

US stocks tumbled and Treasury yields spiked after the unexpectedly hot consumer-prices reading fuelled bets the Federal Reserve would have to step up its battle against inflation. The Dow Jones was down 2.2 per cent as of 20:50 IST, while the S&P 500 sank 2.6 per cent. The tech-heavy Nasdaq 100 slipped more than 3 per cent in early trade.

“The negative surprise in the US consumer price data means investors will start pricing in a more hawkish stance by the Federal Reserve,” said U R Bhat, co-founder, Alphaniti Fintech. 

Shanghai’s decision to lock down seven districts this weekend to conduct mass Covid-19 tests also weighed on sentiment. The weekend lockdown is the first major restriction on movement after China exited a two-month shutdown earlier this month. The decision came after new infection cases were detected in China's financial hub.

Crude oil slipped on Friday as China imposed new lockdown measures and US inflation rose more than expected, but crude prices remained on track for another weekly gain. Brent crude was down over 2 per cent to $120 a barrel at 2050 IST.

“The lockdown announcement in Shanghai is a shock. People thought things were back to normal,” said Bhat.

The US inflation data comes during a week when the European Central Bank (ECB) surprised markets by signalling that it might raise rates by half a percentage point in September, apart from a quarter-point rise in July. The ECB had last raised rates in 2011, and its deposit rate is now at 0.5 per cent. The ECB also started to unwind its stimulus programme on Thursday and is planning to end its bond purchase programme by July. The Reserve Bank of India (RBI) on Wednesday raised its benchmark rates by 50 basis points.

Investors across the globe are taking money off the table triggered by rising inflation and concerns about how these measures could hurt economic activity and corporate earnings. The raging war in Ukraine has further added to the doubts about markets holding onto gains.

“Rate hike guidance from the ECB and jitters over US inflation data stoked concerns about global growth. Bounces remain short-lived as traders and investors keep selling into them,” said Deepak Jasani, head of retail research, HDFC Securities.

The market breadth was negative, with 2,101 stocks declining and 1,221 advancing. More than two-thirds of the Sensex stocks dropped. Reliance Industries fell 3 per cent and dragged the Sensex lower by nearly 260 points.

“Investors would also look forward to the upcoming Fed meeting scheduled for June 14-15. On the domestic side, the depreciating rupee, high crude oil prices, and consistent FPI selling remain key negatives. The market has been stuck in a broader range for the last month, which is expected to continue until any clear direction emerges on either side. While declines are being bought into – support is missing at higher levels. We expect limited stock and sector-specific action,” said Siddhartha Khemka, head of research, Motilal Oswal Financial Services.