Nifty, Sensex drop over 2%; Here are 3 key factors pulling down stock market

The Indian market corrected more than 2% in the opening trade, extending weakness for the second day on Thursday. Benchmarks Nifty50 and Sensex dropped over 2% to start at 15,917.40 and 53,070.30 respectively. Following benchmarks, Nifty midcap and smallcap indices too corrected around 2%.  

Among sectoral indices, Nifty IT was top laggard as the index corrected nearly 4%, followed by Metal that declined around 3% as all indices sat in the green.  

Here are the top three factors that led to the weak opening.  

Negative global market cues 

The US market witnessed worst fall since June 2020 on Wednesday. On Wall Street, the Dow Jones Industrial Average fell 3.56%, the S&P 500 lost 4.03% and the Nasdaq Composite dropped 4.73%. 

Meanwhile, tracking weak US market, Asian indices plunged in the morning trade with Japanese Nikkei declining around 2.5%, Hang Seng Index saw over 3% cuts and Chinese Shanghai Composite was trading lower by 0.8% in the early trade. Besides, SGX Nifty Futures dropped over 300 points on the Singaporean Exchange. 

"Indian benchmark indices are set to face heavy turbulence today amid negative global market cues. US markets saw the worst sell off since June 2020 as inflation fear looms," said Mohit Nigam, Head - PMS, Hem Securities just before the market opened. 

Macro sentiments  

Deteriorating macro sentiments such as soaring inflation, recession fears, and the prospect of the Federal Reserve getting even more hawkish continued to keep benchmarks on the edge. Britain’s inflation rate rose to the highest level in 40 years last month amid prolonging Russia’s war in Ukraine. British inflation surged last month to its highest annual rate since 1982, piling pressure on finance minister Rishi Sunak to step up his help for households facing a worsening cost-of-living crisis, said Reuters.  

"Global inflation has become the biggest spoilsport and has derailed the economic growth recovery globally. The post-pandemic inflation which was once believed to be transient has now become an entrenched one. Inflation rates are at a 40-year high in countries like the UK, and USA," said Parth Nyati, Founder, Tradingo.

Besides, India's WPI inflation jumped to a 17-year high, this will force RBI to further hike interest rates, he said. "Also, American retail majors Walmart and Target have disappointed on the Q1 earnings front, indicating that even large companies are unable to cope with the supply chain and inflationary woes. This has created a huge sell-off and meltdown in the majority of the stock markets globally. All these factors have collectively led to a 2% fall in NIFTY and Sensex," said Nyati. 

Meanwhile, British consumer price inflation hit 9% in April, the Office for National Statistics said on Wednesday, surpassing the peaks of the early 1990s recession that many Britons remember for sky-high interest rates and widespread mortgage defaults. 

"UK’s soaring retail inflation number along with Fed Chair’s reassurance on bringing down the inflation, disturbed the sentiment, risking sharper rate hikes," Vinod Nair, Head of Research at Geojit Financial Services said on Wednesday. 

FIIs selling 

Foreign Institutional Investors (FIIs) selling continued unabated as they sold to the tune of Rs 1,254.64 crore in the Indian market on Wednesday. So far, they remained net sellers in the month of May with Rs 37,937.04 crore selling till May 18.  

"Another main reason for the pessimism can be attributed to relentless selling from the FII camp," said Prashanth Tapse, Vice President (Research), Mehta Equities Ltd.