Sensex crashes 500 points: Inflation threat & what else is spooking D-Street

NEW DELHI: Benchmark indices were off to a cautious start on Thursday after inflation in the US hit a 30-year high, raising concerns of an earlier-than-expected hike in interest rates in the world's largest economy. Such fears could intensify foreign outflows and trigger high volatility in emerging markets such as India.

This was all reflected in fear gauge India VIX, which rose 0.9 per cent to 16.45, as the BSE Sensex fell 200 points or 0.83 per cent to 59,851 and NSE Nifty slipped 0.81 per cent to 17,870.

Data showed consumer price inflation in the US has risen to a 30-year high of 6.2 per cent year-on-year in October. Core inflation in the county rose to 4.2 per cent. These numbers are well above most analyst forecasts. In China, too, producer price inflation has risen to 13.5 per cent. This has the potential to spill over to global commodity inflation, said analysts.

"Rising inflation is emerging as a threat to the global equity rally, at least in the short-term. Sensing the danger ahead, the US 10-year yield rose to 1.57 per cent. The Fed still believes that the spike in inflation is caused by supply-side issues and, therefore, is transient. But there are many who believe that the Fed is behind the curve and that the entrenched inflation will force the Fed to accelerate tapering and advance rate hikes. If this scenario is to unfold, there can be a sell-off and sharp corrections in markets, globally," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Among Sensex stocks, HDFC declined 1.13 per cent to Rs 2,913. Tech Mahindra fell 0.92 per cent to Rs 1,551. Kotak Mahindra Bank, SBI, Axis Bank, IndusInd Bank and ICICI bank dropped 0.5-1 per cent.

On the flip side, Titan Company rose 1.83 per cent to Rs 2,528. Tata Steel advanced over 1 per cent ahead of its quarterly earnings. Maruti Suzuki, L&T, NTPC and ITC were among a handful of companies that were trading in the black.

Zomato, meanwhile, climbed over 5 per cent after its quarterly results. But the stock cut gains to 2.84 per cent at Rs 139.60.

YES Bank stock rose 2.4 per cent to Rs 13.34 after Moody's Investors Service upgraded the lender's credit rating, citing improved financial health. The global rating company provided a new grade of B2, a notch higher than its previous level B3.

MOIL rose 2 per cent on reporting a manifold jump in net profit at Rs 60.23 for the September quarter.

Data showed foreign portfolio investors (FPIs) were net sellers of domestic stocks to the tune of Rs 469.5 crore on Wednesday. They have sold equities worth Rs 5,515 crore so far this month.

So far, Nifty FY22 consensus EPS estimates have remained flat at Rs 736 in the ongoing earnings season, while FY23 estimates have been mildly raised by 1.5 per cent to Rs 868.

"Interestingly, a shift in sectoral expectations has come to the fore, albeit completely masked by a flat headline EPS. While materials led by cement companies (11 per cent upgrade each for FY22/23 PAT) and Energy (4 per cent upgrade for FY23E PAT) have seen earnings expectations upgrade, autos have seen 10 per cent downgrade in FY22 consensus earnings expectations, reinforcing commodities-consumption tussle," Elara Securities said in a note.