Investors lose Rs 7 lakh crore to freefall in Indian markets, with further interest rate hikes on the cards

The US Federal Reserve’s rate hike was in line with expectation and broke the rally of Indian stock markets along with global indices. But the prediction that there are more aggressive rate hikes in store for the year to come, has ensured that Sensex and Nifty continue bleeding cash. The likelihood of better returns in US markets thanks to higher interest rates, means that foreign investors will exit Indian markets. The sell off by FIIs has resulted in a 1000 point crash for Sensex, which has wiped out Rs 7 lakh of investors’ wealth.

Foreign investors dumping stocks

Last week FIIs sold stocks worth more than Rs 4,000 crore, since they are eyeing better returns from deposits in the US, rather than investing in equities. With a recession ahead next year, the US Federal Reserve has stated that interest rates won’t be going down anytime before 2024. This only indicates that as the world and US step on the gas to accelerate interest rates and ride out inflation, global stocks are likely to be mowed down.

Depleting foreign reserves add pressure on rupee

Markets will also be under pressure as investors keep an eye on an expected 50 basis points rate hike by the RBI. The rupee is in free fall hitting all time lows, day after day, as foreign reserves have their lowest levels in two years at $545 billion. This depletion is largely caused because of a reduction in foreign currency assets, and took place despite RBI’s efforts to increase forex reserves. The central bank had relaxed norms for deposits by NRIs, and for foreign portfolio investors, to strengthen the rupee, which now stands way over 81 against the US dollar.

Nifty has also dropped below 17,000 points, while total valuation of firms listed on the BSE is now less than Rs 270 lakh crore.