The nation’s first equity index, which was introduced on January 2nd, 1986, has grown from 124 in April 1979 to 50,000 now, growing at an average annual rate of 15.9% over 42 years. The S&P BSE Sensex has experienced a CAGR of 13.5 percent since it reached 1,000 in 1990. The benchmark index didn’t include IT companies or banking equities 35 years ago. Today, it includes 4 IT companies and 9 stocks from the banking and finance sector. Reliance Industries, M&M, L&T, ITC, and HUL are the only five original index members to still be present.
Why are investors in such a panic?
As investors were alarmed by worries of rapid interest rate increases, bears tightened their hold on the Indian equity markets. Every sector saw losses, but the selloff was particularly pronounced in the banking, metals, and real estate sectors. According to analysts, investors’ risk appetite was being dampened by prolonged equities selloffs by overseas investors, negative market sentiments on a worldwide scale because of concern over ad hoc price increase by the US Federal Reserve, as well as a lower rupee.
The US Fed’s rate hike and the RBI’s potential rate action have already been factored out by the markets. Investor confidence is being dampened by the persistent selling by overseas investors and the negative state of the world markets. It presents a chance for long-term investors to purchase premium names in the banking and financial sectors.
Reasons Behind the Bearishness in the Stock Market
- US inflation reaches a new four-decade high: The US inflation rate accelerated to 8.6% from a year earlier and beyond street expectations, setting a new record for the country dating back 40 years. As US market futures fell in trade, the raging inflation prolonged the selloff on Wall Street. The US Fed will have to ratchet up its fight against inflation, according to bets spurred by this hot consumer pricing data.
- Crude oil prices are volatile. As investors prepare for additional US Federal Reserve monetary tightening to combat rising US inflation levels and the possibility of additional lockdowns due to an increase in Covid-19 cases in China, oil prices have continued to decline. In order to trade at $120 per barrel and $118 per barrel, respectively, Brent Crude and WTI Crude both experienced a 1.4% decline. Following China’s announcement of widespread testing in Beijing because to Covid-19’s aggressive spread, crude oil prices fell.
- Indian inflation data: A poll of economists indicates that they anticipate a decline in the consumer price index from 7.7% in April to 7.10% in May. They anticipate the CPI for May to fall between 6.7% and 8.3%. The Reserve Bank of India raised interest rates by 50 basis points recently, and they anticipate that inflation will continue to exceed their upper tolerance band of 6% through December of this year.
- Rupees falling precipitously and FIIs in exit mode: On Monday, the Indian rupee hit an all-time low versus the US dollar of 78.15 due to higher dollar demand, concern about the US Fed raising interest rates, and erratic crude oil prices. In addition, India’s loss of Rs 30.6 crore in June from its foreign exchange reserve hurt the rupee.
Investor sentiment was lowered in the meantime by repeated selling by international portfolio investors. Eight consecutive months of net selling by FPIs have resulted in the sale of securities totaling Rs 13,888 crore. This brings the total value of equity sold by FPIs this year to Rs 1,81,043 with this transaction.
We may observe a decline in the Sensex and it may once more fall below 50000 if these factors continue to increase.