Indian Equity markets opened with deep cuts on Friday as traders awaited the inflation numbers in the US, due later in the day. On Friday, the markets lost ground eroding more than Rs 2.7 lakh crore of investor wealth, showed data on BSE. Sensex is trading lower by around 950 points, Nifty around 16,200. The Sensex was trading lower by 952.7 points or 1.72 per cent at 54,4372.6 and the Nifty was lower by 263.6 points or 1.6 per cent at 16,214.45.
Investors’ confidence has been spooked as persistently elevated levels of commodity prices, and disrupted supply chains around the world continue to be a double whammy for the economy and companies alike, analysts said. “Strengthening of the US 10-year bond yield to 3.05 per cent can be interpreted as the market discounting worse-than-expected inflation data in the US on Friday. If inflation data turns out to be worse than expected, equity markets will turn bearish. If it doesn’t, markets will stage a rebound next week. Calibrated buying on dips in high-quality banking and IT stocks can fetch good returns to investors in the medium-term,” said V K Vijayakumar, chief investment strategist at Geojit Financial Services.
Here are the key factors that dragged the markets lower on Friday:
US CPI Data
Investors are waiting for US CPI inflation data for May today. They expect the US Federal Reserve to hike rates by 50 basis points next week, especially if data confirms an elevated inflation reading.
Investors were nervous about a potential slowdown in the economic growth in the wake of the Federal Reserve’s monetary policy tightening, with the May consumer-price index report scheduled later today, said Deepak Jasani, Head of Retail Research, HDFC Securities.
Crude Oil on a Boil
The rise in crude oil prices to new peaks has been hurting India’s import bill, which majorly constitutes petroleum products. Despite a drop on Friday, crude prices hovered near a three-month high. Brent crude futures for August was down $1.01, or 0.8 per cent, at $122.06 a barrel as of 0141 GMT after a 0.4 per cent decline the previous day.
ECB Signals Rate Hike
The European Central Bank (ECB) on Thursday announced that it would take a 25 bps rate hike at its next meeting in July. This would be the first increase in interest rates in around 10 years. Further, the bank expects a further hike at the September meeting as well. It also downgraded the growth forecast to 2.8 per cent for 2022, and raised the inflation estimate to 6.8 per cent from 5.1 per cent projected in March.
Return of Partial Covid-19 Restrictions in Shanghai
China’s business hub Shanghai has again been put under restrictions just after the city-wide lockdown was lifted on June 1. The reimposition of a lockdown in the major Chinese city is weighing on markets, as likely supply disruptions threaten India Inc’s profitability prospects.
Rupee at All-Time Low
Domestic currency hit a fresh low of Rs 77.82 per US dollar on Friday. The greenback has been on the front foot thanks to the weakness in the emerging market currencies. The dollar was supported by a surge in US treasury bond yields. However, sharp upsides were capped by weak economic data, said ICICIDirect in its morning note. The dollar index extended its gain and crossed the 103 mark.
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