Five Reasons Why The Sensex Plunged 1000 Points In Trade

Indian Stock Markets are showing major weakness today, with the Sensex plunging 1000 points. Here are five key reasons why the stock markets have dropped sharply.

US Rate hike to control inflation

The US Federal Reserve raised the interest rate by 75 bps for the third straight time, to control inflation. As an immediate reaction markets initially gained absorbing the rate hike. However, the US Stock markets started to fall. Reflecting the same trend, Asian stock markets, dropped, including Hang Sang, Sensex, and the Nifty. 

RBI rate hike expectations

Next week, the Indian central bank, RBI is expected to hike the repo rate by 50 bps again. There are now fresh worries that a falling rupee, may push the RBI to hike rates faster and with a larger quantum. 

Rally in the US Dollar

The US Dollar index rallied to a 20-year high after the rate hike, reached at 112. The Russian President recently threatened to use nuclear weapons and mobilized more troops against Ukraine, which has created some amount of instability. Investors are flocking to the US dollar as a safe haven foreign currency. Hence, the stock markets are falling.

Rupee fall

The Indian rupee today dropped below the 81 mark, which was a new historic low. When the rupee falls, it reduces the portfolio held by investors in dollar terms and hence may aggravate selling pressure in the markets. 

US Bond Yields

Rate-sensitive US 2-years Treasury yields gained  4.128%, and 10-years Treasury yield rose to 3.693%, at the time of writing. The US rate hike is helping bond yields to gain. Assured income options like US Bonds are now attracting more investors, against risky equities.