Monday Mayhem: Sensex plunges 2.68%, Nifty 2.64%

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Indian shares fell on Monday as investors rattled by the big sell-off in US markets last Friday. On a day when crude oil prices were flat, bonds sold off and the rupiah fell to fresh lows, breaking 78 against the dollar.

Investors rushed to the exit, worried about a hostile and uncertain macroeconomic environment, in which high inflation and rising interest rates could slow growth. The U.S. market opened with deep cuts on Monday as the S&P 500 and Nasdaq both slipped to 52-week lows.

Market watchers believe investors may continue to take no risk given the uncertainty surrounding interest rates, liquidity and growth as central bankers scale back their accommodative measures.

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The Sensex fell 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, investors’ wealth to the tune of Rs 10 trillion was wiped out in just two trading sessions. Most Asian markets ended in the red while European markets also saw steep declines in midday trading.

While the US Federal Reserve is expected to raise rates by 50 basis points on Wednesday, the hike may be steeper by 75 basis points after US inflation climbed to 8.6%. The US Treasury yield jumped 3% to 3.28% on Monday.

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Monday’s selloff was widespread. The Nifty MidCap fell 2.9% while the Nifty SmallCap lost 3.9%. The Bank Nifty lost more than 3% while the Metals index lost nearly 4%.

After the correction, Indian markets are much more reasonably priced. The Nifty now trades at a P/E multiple of 17.4 times one-year forward earnings, down from a peak multiple of 23 times in October.

Meanwhile, the rupiah hit a new low, breaking through the 78 mark against the dollar, as currency markets braced for big rate hikes by the US Fed. The Rupee ended the session at 78.0387, 20 paise lower from Friday’s close, hitting an intraday low at 78.2825. The Reserve Bank of India reportedly intervened in the market.

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The Indian currency would move in line with other Asian currencies, experts said, adding that a move to 80 levels against the greenback could not be ruled out. Bond yields ended the day higher at 7.602%, up 8 basis points from Friday’s close as markets priced in a poor inflation reading for May.

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