Stocks, rupee tumble as US inflation concerns hit markets

The NSE Nifty shed 1.68% to end at 16,201.80 points. The BSE Sensex fell 1.84% to close at 54,303.44. Shares of lenders, information technology companies and

led the declines.

The rupee weakened 0.1% to close at 77.84 per dollar. It had ended at 77.83 on May 16, when it posted a record intraday low of 77.93 to the dollar. The benchmark bond yield was a tad higher at 7.52% on Friday.

ET Bureau

On Thursday, the S&P 500 and the Nasdaq fell over 2% as investors fretted that if consumer inflation data showed stickiness, the US Federal Reserve might have to resort to greater tightening of interest rates next week.

US stock indexes slid again on Friday as consumer inflation increased 8.6% in May – the highest rate since 1981 – from the same period a year ago led by surge in fuel and food prices. Dow was down 2.4%, S&P 500 dropped 2.7% and Nasdaq plunged 3.4% at the time of going to press. Pan-European STOXX 600 index slumped 2.7% Friday.

The European Central Bank (ECB) on Thursday laid out a roadmap to end its stimulus programme and start raising interest rates as inflation forecasts swelled, causing yields on government bonds in the region to spike.

Investors are concerned that tighter monetary policies by central banks and stubbornly high oil prices may derail recovery. “The volatility and uncertainty that we saw in May is continuing this month too because oil prices are not coming down,” said Sunil Singhania, founder, Abakkus Asset Management. “Inflation and rate tightening will keep the near-term outlook challenging.” Brent crude futures rose 0.7% to $123.98 a barrel with brokerages such as Goldman Sachs predicting prices will hit $140 in July-September. Analysts said elevated oil prices could keep the rupee under pressure as India imports over 80% of its crude requirements.

RBI INTERVENTION

But for purchases by RBI, the rupee’s fall against the dollar on Friday could have been much sharper, said analysts. “Central bank intervention was felt during the day’s trading, which in turn arrested the rupee’s sharp value drop,” said Anindya Banerjee, currency analyst at Kotak Securities. “Ahead of the US inflation data, investors across the world sought the safety of dollar-backed assets as any higher-than-expected rise in consumer prices will prompt the US Fed to raise rates faster.”

The exit of investors from emerging markets is weighing on the rupee against the dollar, said Banerjee. Foreign portfolio investors (FPIs) were net sellers to the tune of Rs3,973.95 crore on Friday, while their domestic peers bought stocks worth Rs 2,831 crore. So far in June, overseas investors have pulled Rs18,900 crore out of Indian stocks after net selling worth Rs37,664 crore in May. The total outflow from domestic equities since January is Rs 1.82 lakh crore. Traders do not see big risks to the market in the near term, going by the Volatility Index or VIX on Friday. The fear gauge rose 2.27% to 19.58, which analysts said is not significant despite the sell-off. “It’s a chicken-and-egg situation at the moment though the Indian economy is placed much better amidst global uncertainty,” said Singhania.