Opening weaker on Wednesday, the benchmark stock market indices continued their downtrend from the previous trading session.
Both the S&P BSE Sensex and NSE Nifty 50 saw extended losses throughout the afternoon trading session. The 30-share index, S&P BSE Sensex, dropped over 325 points to reach 65,521, while the 50-share index, NSE Nifty, experienced a decline of almost 88 points, falling below 19,500.
Early trade also witnessed a decline in broader market indices due to increased volatility, reflecting the prevailing gloomy sentiment on Dalal Street. So, what is the cause behind the current downfall of benchmark indices? The primary reason for today’s decline can be attributed to global market weakness, triggered by disappointing macroeconomic data emerging from China, upcoming US inflation figures, and the upcoming monetary policy decision by the Reserve Bank of India (RBI).
Chinese inflation data highlighted a decrease in the consumer price index for July, marking its first year-on-year drop since February 2021. The occurrence of deflation in China indicates its economic struggle to recover from the pandemic, with demand slowing down. The potential impact of a demand slowdown in the world’s second-largest economy extends to global markets, including India.
Domestic investors are also approaching the market with caution due to the imminent release of US inflation data, which is expected to offer insights into the recovery of the world’s largest economy. Predictions indicate a slight uptick in headline inflation to 3.3 percent annually for July, while core inflation is expected to remain steady at 4.8 percent. A moderate increase in inflation could instill confidence in investors, potentially avoiding future rate hikes.
The market is also anticipating the upcoming monetary policy decision by the Reserve Bank of India (RBI) scheduled for August 10. Analysts widely expect the RBI to maintain the repo rate unchanged, offering some relief to the markets. Nevertheless, analysts also suggest that the RBI will uphold its cautious stance, leaving room for potential rate hikes in the future. This stance could lead to minor corrections in the near term.