Mkt rout deepens: Rupee breaches 78/$ for 1st time, Sensex falls 1,456 pts

Fears of more aggressive rate hikes amid high inflation and their impact on economic growth accelerated the equity sell-off across the world on Monday, with the Sensex posting its biggest fall in more than three months and the US’ S&P 500 index sliding into bear territory.

The rupee also depreciated 0.25 per cent to settle at a fresh lifetime low of 78.04 against the US dollar on Monday, breaching the 78 mark for the first time. However, the Indian currency performed rather well compared to most Asian peers, which were hammered due to the hotter-than-expected US inflation data. The rupee hit an intra-day low of 78.28 per dollar.

The Sensex ended the session at 52,846, declining 1,456 points, or 2.7 per cent – its sharpest drop since March 7, while the Nifty slumped 427 points, or 2.6 per cent, to settle at 15,774. Foreign portfolio investors continued their selling spree and sold shares worth Rs 4,164 crore on Monday, provisional data from the exchanges showed.

The S&P 500 slipped more than 20 per cent below its January record and was down more than 3 per cent as of 9 pm IST. The Dow Jones Industrial Average and the tech-heavy Nasdaq fell about 2 per cent and 3.5 per cent, respectively. European shares fell to their lowest in more than three months on Monday.

The US 10-year bond yield stood at 3.2 per cent, the highest since November 2018. At the same time, the India 10-year government securities yield was at 7.6 per cent, the highest since January 2019.

The US inflation data released last week dashed hopes of inflation ‘peaking’ and made investors price in more aggressive monetary tightening by the Federal Reserve. The US consumer price index rose to 8.6 per cent in May, the highest since December 1981. The US Fed, which will meet on June 14 and 15, is expected to raise interest rates by 50 basis points. However, the inflation data led to speculation that the US central bank may consider a 75-basis point hike sometime in the future.

“Many people are talking about a 75-basis point hike; even a 100-basis point hike. The markets are worried about how aggressive the Fed will be,” said Andrew Holland, CEO, Avendus Capital Alternate Strategies.

Saurabh Mukherjea, founder of Marcellus Investment Managers, said Indian equities were unlikely to come out of the bearish phase till the inflationary outlook improved in the US or corporate results in India were decisively better. “If neither happens, we will continue to be in this pattern of being dragged down by the situation in the US. The irony is that the Indian economy has been the strongest in years on corporate results and high-frequency data. But the outlook for the US markets is the grimmest.”

However, some experts said there could be some reason to cheer soon as the consumer price inflation in India moderated a bit. India's headline retail inflation rate eased to 7.04 per cent in May from 7.79 per cent in April.

“It seems that the markets had factored a 75-basis point hike already. The decline has to stem unless there is some negative surprise from more hawkish comments by the Fed. Unless the US markets drop sharply today, the Indian markets have something to cheer for tomorrow,” said U R Bhat, co-founder of Alphaniti Fintech.

The market breadth was weak, with 2,901 stocks declining and 600 advancing on the BSE. Barring one, all Sensex constituents declined.