Tracking sharp losses in the US markets overnight and Asian stocks this morning, the domestic benchmark indices suffered deep losses. The BSE Sensex fell over 1,000 points to 54,668, while the NSE Nifty shed 316 points to 16,366. The BSE market capitalisation slipped Rs 4.8 lakh crore to Rs 254.83 lakh crore from Rs 259.64 lakh crore a day ago. About 2,320 stocks on the bourse were down, 447 up and 76 were unchanged.
Despite some recovery, the midcap and smallcap indices were still down up to 2 per cent. The benchmarks Sensex and Nifty50 fell just over 1 per cent, broadly outperforming Asian peers, which were down up to 4 per cent.
Sunil Nyati, Managing Director, Swastika Investmart Ltd., said: “Stock markets throughout the globe have become extremely fragile due to the entrenched inflation and the possibility of harsh measures by the central banks to tame the same, further other factors like geopolitical tensions, stagflation risk, and global economic growth slowdown have spooked Indian Investors and this led to a sharp fall in Sensex and Nifty.”
Here are the top factors behind the Friday market crash:
Inflation Projections and Policy Rate Hike by Central Banks
On Thursday, the Bank of England warned that the UK economy could shrink in 2023 and projected a 10 per cent-plus inflation, as it increased interest rate by a quarter basis points.
A day earlier, the US Fed had increased its policy rate by 50 basis points, the biggest in 22 years, even as the US GDP shrank 1.4 per cent for the March quarter. In India too, the RBI increased the policy rate by 40 basis points, along with an increase in the cash reserve ratio.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said: “The single important factor roiling global equity markets is the reemergence of inflation as a major threat and market’s scepticism over the central banks’ ability to contain inflation without triggering a sharp economic slowdown.
Oil Prices
Oil prices steadied on Thursday, under pressure from a stronger dollar and a drop in global stock markets while supported by supply worries after the European Union (EU) laid out plans for new sanctions against Russia including an embargo on crude. Brent futures rose 42 cents, or 0.4 per cent, to $110.56 a barrel by 1:54 p.m. EDT (1754 GMT). U.S. West Texas Intermediate (WTI) crude rose 3 cents to $107.84.
FPI Out Flows
May is the eighth straight month when foreign investors are net sellers of domestic equities. This is even as the monthly outflows have fallen from a recent peak of Rs 41,123 crore in March.
A rise in interest rates in the US is pushing the dollar up. The US dollar and risky assets, such as emerging market equities, have an inverse relationship. Data showed the institutional class is a net seller to the tune of Rs 4,857 crore in May so far.
Nifty Technical Outlook
Sameet Chavan, Chief Analyst-Technical and Derivatives, Angel One, said: “The volatility was clearly on the higher side and the way we concluded the weekly expiry, certainly does not bode well for the bulls. But we reiterate, that we would avoid getting carried away by this; because we believe markets are a bit oversold and the last two days’ move could be a deceptive one. Hence, rather than jumping into this, we would stay on the sidelines and would assess the situation for the next 2 – to 3 days. As far as levels are concerned, 16600-16500 are to be treated as immediate supports, while 16900-17000 has now become a sturdy wall.”
What should Investors Do?
Nyati, said: “The sudden Repo Rate and CRR hike by the RBI has perplexed investors and this marks the end of pandemic led stimulus, we believe that investors would have to work very hard to earn good returns as the days of easy money are ending. We suggest investors stay with quality names and invest in stocks that have a good growth outlook and are valued reasonably and take advantage of the current correction.”
Further, Vijaykumar suggested that “Investors should remain calm in these turbulent times without taking aggressive positions. Calibrated buying on declines in small quantities in high quality stocks with preference for value over growth would be a good investment strategy.”
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