Indian equities tanked on Monday with investors rattled by the big sell-off in the US markets last Friday. On a day when prices of crude oil stayed steady, bonds sold off and the rupee sank to new lows, falling through the 78 mark against the dollar.
Investors rushed for the exit, anxious about an unfriendly and uncertain macro environment, in which high inflation and rising interest rates could slow growth. The US market opened with deep cuts on Monday as the S&P 500 and the Nasdaq both slipped to 52-week lows.
Market watchers believe investors may continue to take risk off the table given the uncertainty surrounding interest rates, liquidity and growth as central bankers reduce accommodation.
The Sensex slumped 1,456.74 points, or 2.68%, to close the session at 52,846.70 while the broader Nifty plunged 427.40 points, or 2.64%, to 15,774.40. With a loss of over Rs 6.64 trillion on Monday, investor wealth to the tune of Rs 10 trillion has been wiped out in just two trading sessions. Most Asian markets ended in the red while the European markets too saw big cuts in mid-day trades.
While the US Federal Reserve is tipped to raise rates by 50 basis points on Wednesday, there is a chance the hike could be a steeper 75 basis points after US inflation surged to 8.6%. The yield on the US treasury surged past 3% to hit 3.28% on Monday.
The selling on Monday was broad-based. The Nifty MidCap fell 2.9% while the Nifty SmallCap lost 3.9%. The Bank Nifty gave up more 3% while the Metals index lost close to 4%.
Post the correction, the Indian markets are valued much more reasonably. The Nifty now trades at a P/E multiple of 17.4 times one-year forward earnings, compared with a peak multiple of 23 times in October.
Meanwhile, the rupee dipped to a new low, piercing through the 78 mark against the dollar, with the currency markets bracing for big hikes in rates by the US Fed. The rupee ended the session at 78.0387, weaker by 20 paise over Friday’s close, hitting an intra-day low of 78.2825. The Reserve Bank of India is believed to have intervened in the market.
The Indian currency would move in line with other Asian currencies, experts said, adding that a move to levels of 80 against the greenback could not be ruled out. Bond yields ended the day higher at 7.602%, up 8 basis points over Friday’s closing as the markets anticipated a bad inflation number for May.
