Investors on Dalal Street witnessed an erosion of Rs 13 lakh crore of wealth in just four trading sessions as a sharp rise in dollar index and outflows by foreign institutional investors dampened sentiment amid weak global cues. Amid the ongoing selling in the stock market, market capitalisation of the BSE-listed firms tanked to Rs 270 lakh crore in the afternoon trade on September 26 from Rs 283 lakh crore on September 20.
The benchmark equity index BSE Sensex cracked 4 per cent to 57,272.02 at around 12.25 pm (IST) on September 23 from 59,719.74 on September 20.
Commenting on the ongoing turmoil in the Indian equity market, Santosh Meena, Head of Research, Swastika Investmart said, “A sharp rise in the dollar index due to a 75 basis rate hike along with hawkish commentary by the US fed is leading to weakness in the rupee and outflow by foreign investors. Therefore, we are seeing pressure in the Indian equity markets.”
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Strengthening dollar/ falling rupee
Despite recent weakness, Meena further added that rupee is still one of the best-performing currencies amid turbulence in other emerging market currencies. “We showed strong resilience for a long time but can’t remain in isolation for a long time if global markets are in serious trouble,” he said.
The dollar index has jumped to over 113-mark at present from 110 level on September 20. On the other hand, the rupee cracked 2.29 per cent to an all-time low of 81.60 against dollar at around 12.40 pm (IST) from 79.77 on September 20.
Commenting on the ongoing fall in the currency market, Anil Kumar Bhansali, Head of Treasury, Finrex Treasury Advisors said, “Rupee to remain in a range of Rs 81 to Rs 81.60 as volatility grips all segments of the markets. The dollar looks very much overbought at these levels.”
Outflows by FIIs
After an inflow of over Rs 12,000 crore in the first half of September, foreign institutional investors (FIIs) have again turned net sellers in the second half. They sold shares worth over Rs 4,000 crore from September 16 to September 23.
Subdued global cues
US equities closed lower for the week ended September 23 on the fear of further aggressive rate hike by US Fed. On Friday S&P 500 plunged 1.7 per cent, Dow Jones shed 1.6 per cent, while Nasdaq was down 1.8 per cent. For the week, all three indices fell in the range of 4-5 per cent testing fresh 2022 low.
The dollar scaled a 22-year high and bonds sold off again as fears grew that a central bank prescription of raising interest rates to tame inflation will drag major economies into recession. The 10-year US Treasury held near 3.7 per cent, the highest level since 2010.
Mitul Shah, Head of Research at Reliance Securities said, “The US equities trading lower after Federal Reserve officials raised interest rates by 75 basis points for a third straight time last week and Chair Jerome Powell implied in hawkish remarks that policymakers were prepared to accept economic pain in exchange for restoring price stability.”
“Globally, the market will eye on economic data from the US and Europe especially inflation numbers. Indian equity markets may continue to outperform therefore this dip should be taken as a buying opportunity. In terms of sectors, the domestic economy facing sectors like financials, capital goods, Infrastructure, real estate, auto, and consumption will continue to do well however some value buying can be seen in IT, pharma, and chemical names,” Meena said.