Markets fall for third straight day as US inflation hits 30-year high

The benchmark Sensex declined as much as 1.1 per cent, or 696 points, intra-day before recouping somewhat in the last hour

India’s benchmark indices declined for a third straight day on Thursday as a surge in US inflation triggered risk-off bets. Investors started to price in the possibility of a sooner-than-expected rate hike by the US Federal Reserve (Fed). The annual inflation rate in the US hit a 30-year high in October, challenging the Fed’s ‘transitory’ narrative.

The Sensex fell as much as 1.1 per cent, or 696 points, intra-day before recouping some losses in the last hour. The index ended the session at 59,919, a decline of 433 points, or 0.72 per cent. The Nifty, on the other hand, dropped 143 points, or 0.8 per cent, to end the session at 17,873.

The US inflation data showed that the consumer price index (CPI) had risen to 6.2 per cent in October — a 30-year high on a year-on-year basis. The numbers were well above analysts’ expectations.

“The US inflation shocker came on top of a strong CPI report from China, showing pass-through of raw material prices into consumer goods. Clearly, the ‘transitory for longer’ theme is gaining momentum. The deeply negative real interest rates instil fears that the Fed could struggle to ensure price stability, contain excess leverage or prevent asset bubbles from expanding/forming in core and non-core markets,” said Madhavi Arora, lead economist, Emkay Global Financial Services.

Analysts said the hike in interest rates could trigger foreign portfolio investor (FPI) outflows from India. The near-zero interest rates and aggressive bond purchases by the Fed have propelled a massive rally in equity markets, including India, from last March.

The US data has increased the bets for an earlier hike, according to news reports. The Fed has already announced its decision to taper bond purchases.

FPIs on Thursday sold shares worth Rs 1,637 crore. Since October, they have pulled out over $3 billion from the domestic market.

“Global inflationary pressure, following upsetting US inflation data, forced the domestic market to trade with losses. Rising inflationary pressure, along with prospects of an early rate hike, can keep the domestic markets on edge since such indicators tempt foreign investors to pump out liquidity from emerging markets like India,” said Vinod Nair, head of research, Geojit Financial Services.

Asian markets were lower, following an inflation scare-related fall in the US, but recovered a little from morning lows.

European stocks were little changed on Thursday after concerns about the US inflation spike offset some relief around property developer China Evergrande and a slew of corporate earnings. London’s benchmark index advanced on Thursday, despite UK gross domestic product (GDP) falling short of expectations for the third quarter.

The UK economy grew 1.3 per cent in the three months to the end of September, trailing behind forecasts of 1.5 per cent and marking a slowdown from the second quarter, when GDP rose 5.5 per cent.

Gold and other safe-haven assets gained as investors moved money from equities.

The market breadth was weak, with 1,859 stocks declining and 1,432 advancing. Four-fifths of the Sensex stocks declined. HDFC fell 1.3 per cent and contributed the most to Sensex decline. State Bank of India fell 2.8 per cent and was the worst-performing Sensex stock.

Barring four, all sectoral indices declined. Realty and health care stocks declined the most, and their gauges declined 2.5 and 1.2 per cent, respectively.