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Nagpur: In early trading on Monday, domestic stock markets and the rupee are experiencing turbulence as a sharp rise in US inflation raises concerns about more aggressive rate hikes and stronger capital outflows. As of 12.15 p.m. IST, the benchmark Sensex was trading 1,422 points lower at 52,881.23, while the Nifty Index was trading 408 points lower at 15,793.15 In the first session, the rupee fell below the 78 mark to 78.28 against the dollar.

What caused the crash?

Indian stocks fell 2.6 percent in the first session as equity markets around the world fell after US May inflation data accelerated to a four-decade high of 8.6 percent, raising concerns about aggressive rate hikes by US treasury yields, which surged to a 14-year high of 3.15 percent. Following the massive sell-off on Friday, US futures are also down 1%. Aside from that, the market will be cautious ahead of various central bank meetings this week.

Speaking of the domestic front, India’s inflation data is due on Monday, and investors are concerned about the RBI’s next gimmick. The RBI may raise policy rates again this month if retail inflation in India rises further and exceeds 8%.

Why is the rupee at an all-time low?.

The rupee is under pressure due to rising US inflation, rate hike fears, and a drop in the stock market. More rate hikes by the US Fed will almost certainly result in large outflows by foreign portfolio investors (FPIs), who have already pulled Rs 18,814 crore from the stock markets in June. Since January of this year, FPIs have taken out Rs 2.40 lakh crore from India, putting pressure on the rupee.

“We might see more weakness ahead of the FOMC meeting on June 15, where the Fed is expected to hike rates by 50 basis points and demonstrate a more aggressive tone,” said Jigar Trivedi, Research Analyst at Anand Rathi Shares and Stock Brokers. However, due to the RBI’s intervention, a runaway depreciation may not occur.

When will the markets stabilize?
The Indian market will only stabilize when the US market stabilizes and the US Fed’s rate hikes cease. When FPIs return and begin pumping money again, the market will recover. “Investors must wait and watch until clarity emerges on the market trend,” said V K Vijayakumar, Chief Investment Strategist at Geoji Financial Services. The 7.1 percent increase in IIP is a silver lining, indicating that the Indian economy is doing well.

In this chaotic situation, what can investors do?

According to analysts, investors should stay invested if they have a long-term investment plan, and mutual fund investors should continue their SIP plan without breaking the investment. On the other hand, the significant correction will provide an opportunity for investors to acquire high-quality stocks at attractive prices. “Investors should wait and watch the situation unfold before making any major commitments.” One analyst advised, “Buying should be limited to stocks/segments that are fairly valued or have good earnings visibility.”

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