Rs 2.7 trillion of investor wealth wiped out. Why did the Sensex fall on Friday?

Five months into calendar year 2022, equity markets continue to be on shaky ground. June also started on a volatile note, with investors cautious about soaring inflation and rising rates. Markets lost ground on Friday with the S&P BSE Sensex and Nifty 50 indices falling as much as 1.3% each and eroding around Rs 2.7 lakh crore from investors’ wealth, BSE data showed.

A day after closing on a positive note, the Sensex lost 700 points and the Nifty slipped below 16,300 in Friday’s intraday trade.

Market confidence has been shaken as persistently high levels of commodity prices and disrupted supply chains around the world continue to be a double whammy for the economy and businesses, analysts said.

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“The strengthening in the US 10-year bond yield to 3.05% can be interpreted as the market pricing in worse than expected US inflation data on Friday. If inflation data turns out to be worse than expected, stock markets will rebound next week. Downside-calibrated buys in high-quality banking and IT stocks can yield good returns for investors over the medium term,” said VK Vijayakumar, chief investment strategist at Geojit. Financial services.

Let’s take a close look at the factors that sent domestic stock markets tumbling on Friday:

Global markets plunge: US markets fell sharply overnight as inventors priced in higher inflation, which could prompt the US Federal Reserve (Fed) to get even more aggressive with rate hikes. Investors fear that, as a result, a recession remains on the cards. In addition, the Fed’s rate-setting committee will meet next week, where it will likely propose another 50 basis point rate hike.

Most Asian markets also fell on Friday, with China’s producer price index and consumer inflation rising 6.4% and 2.1% respectively from a year ago. However, these were in line with market expectations.

ECB signals first rate hike in a decade: The European Central Bank (ECB) announced on Thursday that it would hike rates by 25 basis points at its next meeting in July. This would be the first increase in interest rates for ten years.

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In addition, the bank also expects a further rise at the September meeting. He also lowered the growth forecast to 2.8% for 2022 and raised the inflation estimate to 6.8% from 5.1% projected in March.

Return from containment in Shanghai: Shanghai, China’s business hub, came under restrictions again just after the citywide lockdown was lifted on June 1. reimposition of containment in the major Chinese city is weighing on markets as likely supply disruptions threaten India Inc’s profitability outlook.

The growing number of Covid-19 in India: A new resurgence of Covid-19 cases across the country, especially in Maharashtra, has made market participants nervous as any possible restrictions could derail the economic recovery. India has reported more than 7,000 cases since Wednesday, the highest after January. A total of 7,584 cases have been reported today.

Rising Crude and Weaker Rupee: Oil prices have been sustainably above the $120/barrel mark for some time now. This, coupled with a weaker rupee, poses a major threat to India’s already growing current account deficit. Brent was trading at $122/barrel, while the rupee touched a new low of 77.82 per dollar in today’s trading. Moreover, a depreciating rupee may further undermine the confidence of foreign investors, who are already pulling out of Indian equities.

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