MUMBAI: Reports that India is expected to experience its driest monsoon in a decade rattled investors on Dalal Street on Friday. In late trading sessions, the Sensex dropped sharply, closing nearly 1,100 points (1.4%) lower at 74,776 points. Data from the exchanges showed that HDFC Bank, ICICI Bank, and Reliance Industries were the biggest contributors to the day's decline.
The rebalancing of the MSCI Emerging Markets Index, which triggered a surge of selling in the last hour of trading, further aggravated the sell-off. This significant drop in points occurred despite the rupee strengthening against the US dollar and a decline in crude oil prices. Since the onset of the West Asia conflict on February 28, the Sensex's movements have largely been directly correlated with the rupee's strength and inversely correlated with oil prices.
Vinod Nair, Head of Research at Geojit Investments, noted that the late selling was broad-based following the Indian Meteorological Department's (IMD) monsoon forecast, which predicted rainfall at about 90% of the long-period average (LPA). "The prospect of deficient rainfall, coupled with the increasing likelihood of an El Nino weather pattern, has heightened fears of elevated food inflation in the coming months. However, the downside risk appears partially mitigated by the recent moderation in crude oil prices and bond yields," Nair said.
Global sentiment had been supportive of stock prices amid expectations of a diplomatic breakthrough between Iran and the US, which led to a rally in international markets. Looking ahead, Nair added, "In the near term, investor attention is expected to shift toward the upcoming RBI monetary policy decision and GDP data release, both scheduled for June 5."
