Domestic indices opened 2% lower on Monday, with the rupee hitting a lifetime low as investors awaited inflation data later in the day, while global markets plunged over fears of aggressive policy tightening by the US Federal Reserve later this week.

Domestic indices opened 2% lower on Monday, with the rupee hitting a lifetime low as investors awaited inflation data later in the day, while global markets plunged over fears of aggressive policy tightening by the US Federal Reserve later this week.  The NSE Nifty 50 index was down 2.3% at 15,833.45 at the time of writing, after touching its lowest in nearly four weeks. The S&P BSE sensex fell 2.4% to 52,990.35.

The rupee touched a lifetime low of 78.28 to the dollar while the benchmark 10-year bond yield hit 7.60%, its highest since Feb. 28, 2019.

The Nifty IT index was down 2.6%, while the NSE bank index fell nearly 3%.

Asian markets were all in the red, falling up to 2.7 percent. US stock futures fell 1.3 percent over fears that the Fed would tighten policy on Wednesday after data last week showed the US consumer price index hit its highest in over 40 years last month. Rising Covid-19 cases in Beijing added to woes, only a short time after the city relaxed curbs to quell a recent outbreak.

The US Fed will review its interest rate policy on June 14-15 and it is expected to increase interest rates by 50 basis points this time.

According to Nomura India, “Friday’s hotter-than-expected month-on-month core CPI print in the US means that the peak-inflation narrative, for now, is delayed with the Fed likely to remain on the hawkish path until monthly inflation shows clear signs of sequential slowing.” The FOMC will be the main event coming week, where our economists look for a 50bp hike and Chair Powell likely signaling a fourth 50bp hike in September, it said.

Global weakness dampened domestic sentiment, even as data last week showed the domestic factory output growth climbed to an 8-month high of 7.1 percent in April.

“The near-term market trend is weak. The May US inflation print at 8.6 percent against the market expectation of 8.3 percent is likely to turn the Fed more hawkish with a series of 50 bp rate hikes taking the terminal rate by mid-2023 above 3.5 percent. Such a scenario would be negative for risky assets like equity, particularly in the context of declining global growth. The Indian market will stabilize only when the US market stabilizes. Therefore, investors may wait and watch till clarity emerges,” said VK Vijayakumar of Geojit Financial Services.

Here are the top five reasons behind the sharp slump in Indian equity markets on Monday:

1.  US and Indian inflation at a new 40-year high: 

2. Fear of aggressive rate hikes: 

3.  Volatile crude oil prices: 

4.  Rupee’s freefall and FIIs on exit mode: 

5.  selling by foreign portfolio investors (FPIs)