Domestic shares lost nearly Rs 5 lakh crore in the first 15 minutes of trading on Friday, buoyed by strong selling across the board. The market weakness was so severe that for every rise in price, six stocks fell. The market capitalization of BSE rose from Rs 4.8 lakh crore to Rs 254.83 lakh crore from Rs 259.64 lakh crore a day ago. About 2,320 shares were down, 447 were up and 76 were flat. Despite some recovery, the small and mid-cap indices were still down 2%. Benchmarks Sensex and Nifty50 fell just over 1%, significantly outperforming their Asian peers, which fell by up to 4%.
Here are some factors weighing on the market:
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- Central Bank Actions
On Thursday, the Bank of England warned the UK economy could contract in 2023 and forecast inflation to top 10%, raising interest rates by a quarter basis point. A day earlier, the US Federal Reserve had raised interest rates by 50 basis points, the highest in 22 years, despite US GDP falling 1.4% in the March quarter. Also in India, the RBI raised interest rates by 40 basis points, along with an increase in the cash reserve ratio.
- Rise in Oil Prices
Oil prices rose for a third straight session on Friday, assuaging worries about global economic growth as concerns over tight supplies supported prices ahead of a looming European Union embargo on Russian oil. OPEC+ on Thursday agreed to only a modest monthly increase in oil production, arguing the producer group cannot be blamed for Russian supply disruptions and saying China's coronavirus lockdowns threaten demand prospects.
- Bad US economic data
Data releases from the United States suggest that the number of initial jobless claims hit 200,000 last week in a still tight labour market.
- FPI Outflows
May marks the eighth consecutive month that foreign investors have been net sellers of domestic stocks. This is true even as monthly outflows declined from a recent peak of Rs 41,123 crore in March. A rise in interest rates in the United States pushes the dollar higher. The US dollar and risky assets like emerging market stocks have an inverse relationship. Data showed that the institutional class has been a net seller at Rs 4,857 crore so far in May.