Sensex, Nifty snap 3-day winning streak as global inflation fears weigh: Here’s what to do now

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The Indian equity market snapped a 3-day gaining streak on Friday, as inflation rising to a 40–year high in the US weighed on investor sentiment. Nifty 50 ended 231.1 points lower at 17,375 while the 30-share Sensex lost 1.31% to 58,152.92. We take a look at the major factors weighing on the market today. 

US inflation rises to a 40-year high

On Thursday, the Labor Department released the latest consumer price index data, which revealed that the  rate of U.S. inflation rose again in January to 7.5%, highest since 1982. Higher than expected inflation spooked investor sentiment and led to a massive sleep-off in the global markets. Investors are now beaching for more hawkish monetary policy going forward. 

10-year treasury yields rise

The benchmark 10-year yield reached its highest level since August 2019, topping the closely watched level of 2% as investors priced in the likelihood of higher interest rates from the US Central Bank this year. Goldman Sachs now expects seven 25 basis point interest rate rises from the US Federal Reserve this year, up from its previous forecast of five. 

All Sectoral indices hit

All sectoral indices ended lower on NSE. Nifty IT was the top loser, down 2.72 per cent, followed by Nifty PSU Bank which slipped over 2 per cent as well. Nifty Realty and Nifty Financial Services were other major losers. As many as 45 stocks in the Nifty50 pack finished the day in the red. 

Impact of tightening rates on stocks

  • Overvalued tech stocks have been the worst hit as investors fear that higher interest rates will continue to eat away at valuations that the expected to be delivered far into the future
  • The types of companies that have suffered the most are ones that don’t have any profits now, but could have rapid growth in the future
  • Amid rising interest rates it would be best to focus on profitable companies with a strong balance sheet 
  • Financials and industrial stocks with lower debt are expected to fare better an a rising interest rate scenario

What should you do now?

  • Invest in equities in a staggered manner. 
  • Keep your SIP’s running. Stick to large caps and index stocks that are best suited to navigate the ongoing volatility 
  • INDmoney’s ROBO STP can help you invest in these volatile markets
  • Invest only high-quality AAA-rated bonds as they have the least risk.
  • There is a significant tax advantage in holding a debt fund for more than 3 years. 
  • For a more than 3-year investment horizon, an investor should prefer short duration (duration < 3) fixed income instruments over a long duration. Stick to short duration funds and bonds, as yields are expected to remain volatile in the near future. Further, in the medium-term (2-3 years) the rate cycle is expected to bottom out and move up.
  • Avoid lump sum allocation and adopt a more staggered approach over the next few months.
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