Nifty, Sensex correct up to 4% in two days, decline over 2.5% today; 5 factors weighing on India stock market

The Indian market fell more than two and half per cent on Monday amid multiple domestic and global cues. Benchmarks Nifty50 and Sensex slipped to the day's low of 15,749.90 and 52,734.98 respectively as profit booking in banking, financial services and IT stocks weighed on the domestic market. Small cap and midcap stocks remained under pressure as the Nifty indices corrected up to 2.5% on Monday. Amid volatility, the market fell nearly four per cent in the last two sessions alone, and has corrected around 5% in the past one week as on June 13. 

"The Indian market will stabilize only when the US market stabilises. Therefore, investors may wait and watch till clarity emerges on the market trend," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services. 

To be honest, today’s fall is nothing new; it’s just a reality check as the majority of stock prices had moved far away from their fundamentals or intrinsic values, said Santosh Meena, Head of Research, Swastika Investmart Ltd.  

"Markets often need trigger events to comply with the universal law of mean reversion and the Russia-Ukraine War is that event this time," said the expert.  

As the market continues to decline and trade with uncertainty, here are five factors that led the carnage on Dalal Street on Monday. 

US inflation data  

The US inflation rose to a fresh 40-year high in May, hinting at a more aggressive interest-rate hikes by the Federal Reserve. The consumer price index jumped 8.6% from a year earlier, as per Labor Department data.  

"The May US inflation print at 8.6% against the market expectation of 8.3% is likely to turn the Fed more hawkish with a series of 50 bp rate hikes taking the terminal rate by mid 2023 above 3.5%. Such a scenario would be negative for risky assets like equity, particularly in the context of declining global growth," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services. 

FOMC Meeting outcome  

After inflated inflation data, Federal Reserve Chair Jerome Powel is expected to go aggressive on rate hike on Wednesday, when Powel will announce 2-day Federal Open Market Committee (FOMC) meet outcome.  

The record-high inflation numbers announced in the USA on Friday have created a huge sell-off in the global equity markets, said Meena. 

The markets expect Fed to become more aggressive to tame the entrenched inflation, he adds. 

Weakness in Rupee

The rupee slipped 36 paise to its all-time low of 78.29 against the US dollar in early trade on Monday, tracking the strength of the American currency overseas as investors flocked to the safe-haven currency amid an overall risk-averse sentiment. 

FIIs selling spree 

The Foreign Institutional Investors continue to pull out money from the Indian markets. In the month of June alone so far, the FIIs sold equities to the tune of Rs 18,814.96 crore as on Friday, June 10. Besides, they remained net sellers even on Friday as they offloaded shares worth Rs 3,973.95 crore on Friday.  

"The markets expects Fed to become more aggressive to tame the entrenched inflation, and this will lead to huge outflows of FII’s and FPI’s money and further depreciation of INR," Meena said.  

Weak global markets 

All major Asian indices were trading deep in the red in early trade on Monday. SGX Nifty Futures, which hints at opening trade for the Indian market, was trading lower by whooping 320 points or nearly two per cent on the Singaporean Exchange in early Monday trade.  

Besides, Japanese Nikkei 225, Hang Seng Index at the Hong Kong Exchange and Chinese Shanghai Composite dropped 2.8%, 2.9% and 1.4% respectively.  

Earlier on Friday, the US market closed in the red in view of record inflation. Dow Jones ended lower by 2.7%, Nasdaq fell 3.5% and S&P500 2.9%.