On Friday, Sensex lost 1,020.80 points or 1.73% to end at 58,098.92. Nifty 50 slipped 302.45 points or 1.72% to close at 17,327.35. A sell-off was recorded across all sector indices, with banking stocks being the worst beaten. Consumer durables, autos and capital goods stocks also detracted from performance. Mid and small cap stocks were also under pressure.
Meanwhile, the rupiah closed at 81.09 against the US dollar in the interbank forex market on the strength of the greenback and risk aversion. The local unit had hit a new all-time low of 81.23 in Friday’s session.
Investment by REITs in the equity market amounts to ₹8,638 crore till September 23 for the current month. REITs were net sellers in recent trading sessions. FII removed approx. ₹2,899.68 crore on September 23, which is higher than the release of ₹2,509.55 crores recorded on September 22. Overall, last week, FIIs were taken down ₹4,361.77 crore shares.
Investors started last week on a high note and even made notable gains on September 22. However, as Fed policy approached, sentiment deteriorated and extreme volatility was seen.
From September 20-23, Sensex lost over 1,620 points and Nifty 50 lost nearly 489 points. However, compared to the September 16 printing, the Sensex and Nifty 50’s downfall is limited to 742 points and 250 points respectively.
Mitul Shah – head of research at Reliance Securities said a 75 basis point rate hike by the Fed had already been priced in, but more than expected hawkish comments had a further impact on the market .”
Considering that Vinod Nair, head of research at Geojit Financial Services, said: “The FED’s 75 basis point rate hike was anticipated, but the sustained aggressive stance indicating 125 basis point hikes in the next two political meetings by December 2022 scared the market INR fell to a new high of 81 per USD when FII started selling.”
In Shah’s view, the United States and Europe are all headed for a recession, while India is in all likelihood very well warding it off. The Bank of England raised its key rate another 50 basis points to 2.25%, matching its half-point increase last month, the biggest rise in 27 years. In the global downturn, there is a silver lining on the home front, with strong macros in key frequency indicators. The market will follow the upcoming RBI policy review next week. MPC will hold its three-day meeting between September 28 and 30, where a 50 basis point hike is not ruled out.
“Inflation has remained above the RBI’s upper tolerance range for the eighth consecutive month and as a result is expected to remain stable at around 7.5% in FY23, driven by higher inflation. food prices in line with high frequency food price trend Indian economy is facing headwinds from geopolitical tensions, rising financial market volatility, tighter financial conditions and recession fears The rise in the repo rate coupled with inflation is likely to impact the market in the near term. Going forward, key events for the markets include, -inflation forecast, comments on an external balance sheet, the tone of the policy statement and the path to rate normalization,” Shah added.
According to Nair, the prolonged hawkish monetary policy should further slow the engine of global growth. India is in a better position with a decoupled economy and a recovery in credit growth and tax collection. However, a rise in geopolitical risk and an economic slowdown will affect India with a lag and weaken short-term performance.
Looking to the week ahead, Nair said, “Investors will be watching closely for the RBI’s monetary policy outcome on September 30. There is consensus that a 50 basis point rate hike will help bolster the “INR. maintain the balance between growth and inflation. We expect the direction of the market to be determined by global developments and action by FIIs. On the valuations front, India is today today the most expensive stock market in the world, so investors are advised to wait and watch until the dust settles.”
Shrikant Chouhan, head of equity research (retail) at Kotak Securities, lists inflation, the central bank’s rate hike action, energy prices and recession as remaining top concerns at worldwide. He said: “Crude oil prices have remained broadly stable, but the Indian currency has depreciated in recent days. For the domestic market, one of the key events to watch in the short term is the next monetary policy of the RBI”.
In addition, according to Apurva Sheth, Head of Market Outlook, Samco Securities, the highly anticipated GDP growth figures from the United States will be closely watched by global markets. After a sharp drop of 1.6% in the first quarter, the GDP growth rate in the second quarter would have decreased by 0.6%, which is positive. The direction of Fed rate hikes in the future could be influenced by this number, so international markets will be watching it closely. The outcome of the RBI MPC meeting will be the main talking point at home.
Sheth added: “After falling for three consecutive months, retail price inflation rose to 7% in August. The market anticipates a 50 basis point increase in the repo rate. News about foreign exchange reserves, which have fallen 14% since their peak, will also keep markets on edge. Nifty50 closed this week at 17,327.35 down 1.16%.
RBI has increased the policy repo rate by 140 basis points or 1.4% to 5.40% currently. So far this fiscal year, RBI has increased the repo rate for three consecutive policies. The six-member MPC maintained its “retreat from accommodation” objective to ensure inflation remains on target going forward while supporting growth.
In the August 2022 policy, RBI kept its inflation projection at 6.7% for fiscal year 23 — with a forecast of 7.1% in Q2, 6.4% in Q3 and 5, 8% in Q4 with balanced risks. CPI inflation for the first quarter of FY24 is weighted at 5%.
Similarly, RBI maintained its real GDP growth forecast at 7.2% – with a projection of 16.2% in Q1, 6.2% in Q2, 4.1% in Q3 and 4% in Q4. Real GDP growth is projected at 6.7% for Q1FY24.
Disclaimer: The opinions and recommendations made above are those of individual analysts or brokerage firms, and not of Mint.
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