Sensex, Nifty slip again. What’s pulling the benchmark indices down?

It has been a furious Friday for the Indian stock markets, with domestic stocks losing nearly Rs 5 lakh crore in value in just the first 15 minutes of early trade. 

The overall market capitalization of the Bombay Stock Exchange (BSE) was down by nearly Rs 4.8 lakh crore, slipping from Rs 259.64 lakh crore to Rs 254.83 lakh crore by the afternoon. 

The sell-off was across the board, with six shares in the red for one in the green. While 2,320 shares were trading in the red, just about 447 were in the green and 76 remained unchanged. 

At around 1 pm, Sensex and Nifty were down nearly 1.8% and 1.9%, respectively, exacerbating the sustained sell-off the Indian markets have been witnessing over the last few weeks. 

The market sentiment was dampened even further earlier this week by the surprise announcement by the Reserve Bank of India (RBI) to raise its benchmark lending rate by 40 basis points (bps) to 4.4%. 

But is the RBI the only one raising interest rates?

Not really. The US Federal Reserve has been doing so for the last few months now, and again raised its benchmark rate by 50 basis points on the same day that the Indian central bank did. This was the biggest rate hike by the US Fed in 22 years, with more hikes expected in the coming months. The US economy contracted 1.4% in the March quarter, sparking fears of stagflation. 

Then, on Thursday, the Bank of England said that the UK economy could shrink in 2023 with an inflation rate of more than 10%, as it upped its benchmark lending rate by 25 basis points. Such a high inflation rate is unprecedented for any western economy, as most of the developed west has enjoyed low inflation over the past five decades or so. 

What about global oil prices?

To add to the bad news for countries like India, oil prices have been climbing for the last three days, as worries about tightening supplies underpinned prices ahead of an impending European Union embargo on Russian oil.

Rising oil prices would mean greater US dollar outflows from India, impacting the rupee negatively. 

The Indian rupee has been struggling against the greenback and is now close to the Rs 77 per dollar mark. The Indian currency could depreciate further as the global markets become risk-averse and institutional investors begin withdrawing their investments from emerging markets like India, to the relative safety of their home countries. 

May is the eighth month on the trot when foreign investors are net sellers of domestic equities. 

Moreover, on Thursday, OPEC+ agreed to only a modest monthly oil output increase, arguing that the producer group could not be blamed for disruptions to Russian supply and saying China's coronavirus lockdowns threatened the outlook for demand.

What about the jobs market in the US?

What has further spooked global markets is that numbers released in the US say initial jobless claims ticked up to 200,000 last week amid continued labour market tightness.