The 30-share BSE index plunged 1,046 points or 1.99 per cent to close at 51,496; while the broader NSE Nifty settled 332 points or 2.11 per cent lower at 15,361.
Tata Steel, Tech Mahindra, Bharti Airtel, Wipro and IndusInd Bank were the top losers in sensex pack falling as much as 6.04 per cent. Twenty-nine out of 30 stocks finished in red.
Nestle was the only winner in the BSE index, ending marginally up 0.3 per cent.
On the NSE platform, all sub-indices finished in red with Nifty Metal, Media, Realty falling as much as 5.24 per cent.
Across-the-board selling played havoc on the headline indices, with index majors Reliance Industries and HDFC twins contributing most to the decline.
Both sensex and Nifty have now plunged to their fresh 52-week lows. Stock markets have been under pressure ever since Russia’s invasion of Ukraine in February.
The uncertainty amid the ongoing geopolitical crisis had caused a spike in inflation across major economies of the world. All this at a time when countries were gradually recovering from the slump caused by Covid-19 pandemic in the last 2 years.
Investors lost Rs 5.54 lakh crore in Thursday’s session, with the market capitalisation of all BSE-listed firms standing at Rs 2,39,20,631.65 crore.
“A mere glance at the stocks hitting one-year lows today is reflective of the risk-off mood on the street as only a handful of FMCG stocks displayed a green tick among frontliners,” S Ranganathan, Head of Research at LKP Securities told PTI.
Here are some factors that dragged markets to their one-year low:
* Ukraine war
The escalating crisis in Ukraine dragged stock markets lower across the world. BSE sensex has fallen over 5 per cent since February 24, when Russian troops invaded Ukraine.
The uncertainty surrounding this crisis made investors jittery and their preferences shifted towards safe haven assets as they dumped riskier stocks.
As a result, investors lost over Rs 3 lakh crore as the market capitalisation of BSE listed companies fell to Rs 239 lakh crore today as compared to Rs 242 lakh crore on February 24.
* FII selling
Foreign institutional investors (FIIs) who were once known to be the drivers of stock markets in India, have been giving up domestic shares amid weak global sentiments.
In fact, June is the 9th consecutive month when FIIs remained net sellers, giving up more than Rs 31,000 crore worth f shares so far.
* Global markets
Not just in India, but sentiments have been weak across global stock markets.
The S&P500 in US confirmed being in bear market 2 days back. This is the 2nd time in 2 years that the Wall Street is under the grasp of bears. The barometer is nearly 22 per cent below its peak set early in this year.
Besides, foreign investors have pulled money out of emerging Asia, excluding China, for five straight months, worried about inflation and a reluctance in the region to raise rates in the face of slowing global growth.
* Inflation soars
The war in Ukraine has boosted food and energy prices as the fighting disrupts shipments of oil, natural gas, grain and cooking oil. That is adding to price increases that began last year as the global economy started to recover from the Covid-19 pandemic.
While post-pandemic global demand, extreme weather, tightening food stocks, high energy prices, supply chain bottlenecks and export restrictions and taxes have been straining the food market for two years, the recent convergence of all these factors following Russia’s invasion is unprecedented and has sent food inflation rates spiking around the world.
India’s consumer price index (CPI) based inflation for May came in at 7.07 per cent due to an increase in edible oil and fuel prices. The retail inflation has stayed above the Reserve Bank of India’s (RBI) comfort zone of 6 per cent for the 5th consecutive month.
While, wholesale price based inflation remained in double digits for 14 straight months, jumping to 15.88 per cent in May.
The war has also forced India, the second-largest producer of wheat, to halt exports of the grain to combat soaring prices at home and avoid potential shortages.
* Energy markets in chaos
Russia’s invasion of Ukraine and the resulting international backlash have plunged energy markets into chaos, threatening dire economic consequences that rival those of the 1970s oil shocks.
The sudden economic isolation is choking off a major global source of energy, metals and crops. It’s threatening Russia’s very foundations and raising fears of something the developed world hasn’t suffered in decades — acute inflation and real energy shortages.
It’s not just energy. Wheat jumped to the highest level since 2008, above 400 euros a ton in Paris, as the Ukraine war cut off about a quarter of the world’s exports. Aluminum hit a record above $3,800 a ton on the London Metal Exchange and copper closed in on its all-time high last month.
* All eyes on US Fed’s decision
Inflation in the US, which had been under control since the early 1980s, resurged with a vengeance just over a year ago, largely a consequence of the economy’s unexpectedly robust recovery from the pandemic recession.
Only three months ago did the Fed start raising rates.
On Wednesday, the Fed hiked its policy interest rate by 75 bps. Not since 1994 has the central bank raised its key rate by that much all at once.
US Federal Reserve Chair Jerome Powell has pledged to do whatever it takes to curb inflation, now raging at a four-decade high and defying the Fed’s efforts so far to tame it.
* Recession fears loom
All kinds of investments, from bonds to bitcoin, have tumbled this year as high inflation forces central banks to try to slow inflation that has flared as economies recover from disruptions of the pandemic. The war in Ukraine has added to those price pressures.
Powell said on Wednesday the Fed is moving “expeditiously” to get rates closer to normal levels after last week’s stunning report that showed inflation at the consumer level unexpectedly accelerated last month, dashing hopes that inflation may have already peaked.
However, he also hinted that rate increases later this year may be smaller. That appeared to assuage fears the central bank might overshoot its goal of cooling inflation and tip the economy into a downturn.
The Fed is “not trying to induce a recession now, let’s be clear about that,” Powell said. He called Wednesday’s big increase “front-end loading.”
Even without recession, higher interest rates hurt prices for investments. The hardest-hit have been those that soared the most in the easy-money era of ultralow interest rates, including high-growth technology stocks and cryptocurrencies.
* Rate hikes by RBI
The Reserve Bank of India (RBI) hiked its key policy rate after a gap of over 2 years. In the last 2 months the repo rate has gone up by 90 basis points (bps) and now stands at 4.9 per cent.
Food and fuel are the two main sources of inflation in India and prices of most food items have shot up in recent months due to supply disruptions caused by Russia’s invasion of Ukraine, erratic weather and export curbs.
India meets two-thirds of its vegetable oil demand through imports. Sunflower oil imports from the Black Sea region have been crippled by the war while palm oil supplies have been hampered by Indonesia’s export curbs.
* Dragging rupee
The rupee plunged to its new all-time of 78.22 against the US dollar on Wednesday as a lacklustre trend in domestic equities and persistent foreign fund outflows weighed on investor sentiment.
The domestic currency has now closed at record lows for four straight sessions.
“Rising crude oil prices have also added to the Rupee’s woes as Brent crude oil prices hit a three-month high of $125.14/barrel on Tuesday. A breach of 78.30 levels will trigger further Rupee depreciation towards 78.55/78.75 levels,” Emkay Global Financial Services said.
However, the dollar index fell from its elevated levels after the Federal Reserve raised interest rates by 75 basis points and projected a slowing economy and rising unemployment in the months to come, traders said.
The rupee on Thursday recovered from its record low to close 12 paise higher at 78.10 (provisional) against the American currency, tracking the overnight weakness of the dollar and falling crude oil prices.
* Covid uncertainty
After the severe second wave of Covid, India witnessed 2 more waves since last year. However, neither of the were as intense as the one in May 2021.
When the 3rd wave struck in December-January, states resorted to partial lockdowns and restrictions were imposed on business activities being performed physically. As a result, the Omicron variant spooked sentiments.
The BSE sensex had last scaled its record peak in October 2021, when it breached 62,000-mark. Since then, markets have been under pressure.
Some relief was being witnessed in early February, but it was short-lived as Russia’s invasion of Ukraine made matters worse.
(With inputs from agencies)