The sell-off in Indian equity benchmarks extended to the sixth straight session on Wednesday, reflecting a broader decline in global markets after Federal Reserve policymakers reconfirmed an aggressive policy stance in their fight against surging inflation.
The BSE Sensex index fell 608.8 points to 56,498.72 in early trade, and the NSE Nifty declined 182 points to 16,825.40, mirroring a sea of red in broader Asian bourses.
The latest fall in domestic benchmarks reflects a losing streak which has now stretched for six days in a row as Indian investors await the Reserve Bank of India's monetary policy announcement as it kicks off its three-day policy meeting on Wednesday.
“Bears are likely to witness a rough session and start Wednesday's trade on a sour note, in sync with the slump in other Asian indices. Stock markets across the globe are extremely concerned that the Federal Reserve's war against decades-high inflation could push the US economy into a downturn and have a spill-over effect on other economies too," said Prashanth Tapse, Senior Vice President for Research at Mehta Equities, before the opening bell.
"Sentiment at Dalal Street also remains clouded by lingering concerns over corporate India's earnings which could come under heavy pressure from inflation, an economic downturn, and soaring interest rates," he added.
As the sell-off raced through emerging markets, MSCI's largest index of Asia-Pacific shares outside of Japan dropped 1.7 per cent to its lowest level since April 2020.
Asian bourses fell as rising borrowing costs fueled worries about a worldwide recession, sending investors running for the safe-haven dollar, which rose to a new and pushing the value of the Chinese yuan to historic lows.
The Nikkei in Japan lost 2.1 per cent, and stocks in South Korea dropped 2.4 per cent to a two-year low. Blue-chip stocks in China fell 0.6 per cent.
The European and US futures pointed to a slide, a day after the S&P 500 index experienced its worst run since the beginning of 2020.
The cancellation of Apple Inc.'s plans to increase iPhone production as demand falters further dampened sentiment.
Officials from the Federal Reserve reaffirmed their commitment to containing inflation, with James Bullard emphasising the necessity for tighter monetary policy.
"It is now clear that central banks in advanced economies will make the current tightening cycle the most aggressive in three decades," said Jennifer McKeown, head of global economics at Capital Economics, told Reuters.
"While this may be necessary to tame inflation, it will come at a significant economic cost. In short, we think the next year will look like a global recession, feel like a global recession, and maybe even quack like one, so that's what we're now calling it," she added.
Days after the new British Prime Minister announced significant tax cuts that threaten to increase inflationary pressures, UK markets were once again in a state of chaos.
For the first time in 20 years, the yield on UK government bonds with a 30-year maturity exceeded 5 per cent.
The decline in the value of the pound and UK bonds has shaken investor confidence, and some fund managers may be forced to sell other assets to make up for their losses.
George Saravelos, Global Head of FX strategy at Deutsche Bank, told Reuters that investors now wanted more to finance the country's deficits, including a 200-basis-point rate hike by November and a terminal rate up at 6 per cent.
"This is the level of risk premium that the market now demands to stabilise the currency," said Mr Saravelos. "If this isn't delivered, it risks further currency weakening, further imported inflation, and further tightening, a vicious cycle."