Mumbai : Indian stocks fell, the rupee hit record lows, and bond yields jumped on fears that the US central bank may take a more aggressive rate-hike route after faster-than-expected inflation on Friday, Due to which investors around the world are worried.
Benchmark indices Nifty and Sensex fell 2.64% and 2.68%, respectively, on Monday, their sharpest fall since the beginning of March, while 10-year government bond yields climbed to their highest level since January 2019, hitting a high of 7.602%. But reached. The Indian currency was trading at 78.03 for the first time breaking the $78 level. The rupee weakened to a record low of $ 78.28 per dollar in intraday trading.
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With investors worried about US inflation reports, traders now expect the Fed to take more aggressive action to rein in runaway inflation, which could dent economic growth prospects around the world. US consumer prices rose 8.6% in May, the fastest increase since 1981.
“US bond yields are now trading above the 3.15% level, reflecting expectations of an aggressive rate hike by the Fed at the upcoming FOMC (Federal Open Market Committee) meeting to be held this week. Navin Kulkarni, Chief Investment Officer, Axis Securities said, the market is now watching the outcome of the meeting and how the central bank affects the interest rate trajectory to maintain growth and inflation dynamics.
Panic also put global markets under pressure, with Asian indices witnessing a sharp sell-off. Japan’s Nikkei and Hong Kong’s Hang Seng fell 3%, while European shares fell 1.6-2.33%. “Asian stocks sank as red-hot inflation raised concerns about an even more aggressive US interest rate hike, while new large-scale Covid-19 testing in China sparked concerns of a more crippling lockdown. “European equities have slumped to their lowest level since early March as investors worry that rising inflation will lead to more aggressive monetary tightening, increasing the risk of a recession,” said Deepak Jasani, head of retail research, HDFC Securities.
A sell-off in global stocks sent the S&P 500 into bear market territory, down more than 20% from its January record. S&P 500 futures fell 2.4% in early trading on Monday.
While the upcoming Fed meeting keeps equity investors on their toes, currency markets are also expected to remain under intense pressure as investors junk emerging market currencies in favor of the dollar. Consequently, experts expect the Reserve Bank of India to continue to intervene in the currency markets to support the rupee.
“RBI intervened in the market on Monday both in spot and forward. Until the results of the US Fed meeting on Wednesday are announced, there could be significant upward pressure on the USD-INR. A 75-basis point increase is likely, which is positive for the US dollar. RBI will ensure that the pace of depreciation remains slow and will try to cap the rupee at 79,” said Anindya Banerjee, vice president, currency derivatives and interest rate derivatives at Kotak Securities Ltd.
“Also, as yields are rising globally, Indian bonds will also be affected. If RBI intervenes in the bond market, it may hurt the rupee.
In the absence of any positive trigger and with several global headwinds at play, experts believe that equity markets will remain volatile in the near term.
“The near-term market outlook remains weak on the back of double global headwinds of higher inflation and rising interest rates. Several global central banks are scheduled to meet this week to decide on their monetary policy, which will keep markets busy. Moreover, domestically, declining INR and persistent FII (foreign institutional investor) selling is putting pressure on the markets,” said Siddharth Khemka, head of retail research, Motilal Oswal Financial Services Ltd.
The volatility indicator, India VIX, jumped 13% on Monday, indicating growing panic among investors.