Inflation fears hit the Indian markets on the first day of the week, with the Nifty and the Sensex taking a massive hit, closing 2.6% down. The fall also comes at a time when inflation data is expected to be released in India for the month of May on Monday evening.
The Nifty on the National Stock Exchange closed 427 points lower at 15,774 while the BSE Sensex closed 1456 points lower at 52,846.
Nearly ₹7 lakh crore worth of investor wealth was eroded.
This is the second consecutive day of losses for the markets, with markets sliding 1.5% on Friday, June 10.
The other factors include the Indian rupee at a record low and fresh COVID-19 related lockdowns in China. US economic data, especially inflation, has not been encouraging while economic data released in the United Kingdom shows the economy shrinking in March.
49 out of the 50 stocks saw losses on the BSE Sensex.
The top losers were the 'Bajaj twins':
- Bajaj FINServe, closing at ₹11,390.90, down ₹859.75 or 7.02%
- Its twin Bajaj Finance, closing at ₹5,359.55, down ₹308.30 or 5.44%
IndusInd Bank, Tech Mahindra and ICICI Bank were the next highest losers, falling 5.27%, 4.84% and 4.46% respectively.
Only Nestle India gained 0.52%, closing at ₹16,867.
Here are 5 things to know about the market fall.
1. Indian rupee hits record low
The value of the Indian rupee to the US dollar crossed below the ₹78 mark for the first time, with data showing it going as low as ₹78.407 for one US dollar.
The rupee closed above this mark at ₹78.037 for one dollar.
2. Inflation data
India is slated to release its monthly inflation numbers today.
It has already seen last month's numbers go as high as 7.79%, an 8-year high, and 7% in the month before that.
The Reserve Bank of India's upper tolerance level for inflation is 6% (which is two percentage point upper band around the 4% mark it is expected to keep inflation at).
To counter inflation, the RBI raised its policy repo rate 50 basis points (0.5 percentage points) to 4.9% last Wednesday.
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Also Read: RBI Hikes Repo Rate By 50 Bps To 4.9%, Home Loans To Get Costlier
3. US data and expectations
Inflation data released on Friday showed that United States' economy saw inflation at 8.6%, which was a 40-year high.
Further, the Federal Open Market Committee (FOMC) is scheduled to meet this week, to set the policy rate of the United States. A rate hike as high as 75 basis points is expected, which markets are pricing in.
Interest rate hikes in their home markets incentivises foreign investors to flee foreign markets, as parking funds in their home country becomes more lucrative.
4. Chinese COVID-19 cases
The Chinese capital of Beijing and Shanghai have reintroduced COVID-19 restrictions and lockdown after a resurgence in cases, only a few days after such restrictions were lifted in Shanghai.
In Beijing, a new cluster of cases led by the Omicron variant of the virus linked to a bar has kickstarted mass testing across the city.
Restrictions in China have a domino effect on supply chains around the world due to the pole position Chinese manufacturing has in these supply links.
5. British data
The United Kingdom, the world's fifth largest economy, reported that its economy had shrunk 0.1% in March, despite growing 0.8% in the first quarter 2022, as it faces a cost of living crisis, driven by higher inflation.
This development was below economists' expectations, who predicted the economy to grow by 1% in this period.
In February, the British economy grew just 0.1%, as economists predict a recession for the economy and urging the government to take action.
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