Here’s why Sensex fell over 1,400 points and the rupee hit an all-time low today

Indian stock markets opened in the red on Monday, with the S&P Sensex BSE tumbling over 1,400 points to the 52,860 level, and on the other hand, the rupee also hit an all-time low of 78.15 rupees against the US dollar, on stronger demand for the latter. But the bad news is not over. According to analysts from UBS AG, Nomura Holdings, etc., the Indian currency could fall further between Rs 79 and Rs 81 per dollar in the coming months. According to many experts, India’s decline in foreign exchange reserves by Rs 30.6 crore in June could also have been a major reason for the national currency’s depreciation.

“Currently, global forces are probably pushing the rupee to depreciate. So I think we ourselves are looking at rupee close to 79 by the end of this fiscal year, and it very much depends on where we see the crisis. politics and geopolitics take shape,” said Yuvika Singhal, economist at QuantEco Research.

Additionally, the Monday morning bloodbath seen in Dalal Street, along with the falling Rupee, have various other contributing factors. The first being US inflation, which accelerated to 8.6%, the highest in 40 years. This inflation data made it clear that the US Fed will opt for more aggressive rate hikes to bring inflation under control, weighing on markets and investors alike.

According to Pronab Sen, the former chief statistician of India, one should not worry too much about the depreciation of the rupee. Instead, he says, tame market volatility immediately.

“Rupee depreciation is not a big concern at the moment; we should mentally prepare for the rupee to depreciate. I think the Rupee should be allowed to depreciate, but volatility needs to be curbed because volatility creates uncertainty. And uncertainty is bad for any economic system. Thus, RBI should not focus on managing the value of the rupee but should focus on managing the volatility,” Sen emphasized.

According to a Reuters poll, the US Fed is expected to raise its key rate by 50 basis points in June and July. In addition, according to many experts, another important factor contributing to the current weakness in market sentiment is the continued volatility in the oil market. Brent Crude and WTI Crude both fell 1.4% to trade at $120 per barrel and $118 per barrel, respectively. Additionally, India’s retail price inflation, which is also above the RBI target, is spooking investors in the market.

India will release May retail inflation figures today. According to a Reuters poll, economists expect the consumer price index (CPI) to slip 7.10% in May from 7.7% in April. They expect the CPI for May to be between 6.7% and 8.3%. After the central bank raised interest rates by 50 basis points last week, it expects inflation to remain above its upper tolerance band of 6% until December this year.

“Investment in oil exploration has not taken place, that’s why we see a structural deficit and that’s one of the main reasons for the increase in oil prices. In my opinion, if the Russian-Ukrainian crisis is under control, the price of crude oil will stabilize for a while and go down to $90-95 per barrel, but if the situation does not improve, prices will increase in the medium to long term,” said Naresh Taneja, a leading Indian energy expert.

Many economists and pundits also say that there is no possibility that inflation will slow down now, and according to them, inflation in India will reach 8% and then start to decline. But amid daily changing economic dynamics, it is hard to predict anything, only time will tell where the global and Indian economy is heading.

Also read: Monday blues: Sensex tank more than 1,500 pts; what should investors do?

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