Post Market views - August 29, 2022 - Reliance Securities

Mr. Mitul Shah - Head of Research at Reliance Securities.

Indian equities closed lower following weak global cues on hawkish comments from Jerome Powell at the Jackson Hole last week. The Nifty declined 1.4%, while Mid Cap and Small Cap fell ~1% each. All sectoral indices ended in red except Nifty FMCG (+0.4%) and Nifty Oil & Gas, which was largely flat. Nifty IT plunged the most at 3.5% followed by Nifty Media and Nifty Pvt Bank which were down 2% and 1.9% respectively. Meanwhile, the government is discussing curbs on broken rice exports, which accounts for ~20% of India's shipments. While this move might further disrupt global crop markets and worsen a hunger crisis, the impact is less severe than if it were to restrict all rice exports.

U.S. equities closed lower after Federal Reserve vowed to keep high interest rate to fight inflation at cost of economic growth. On Friday, Dow Jones shed 3%, witnessing the biggest one-day drop since May. The S&P 500 fell 3.4% while Nasdaq slid 3.9%. For the week the all three indices ended more than 4% lower. The 10-year yield inched up to 3.034% from Thursday's 3.023%. Comments from FED chair disappointed and would shift from raising rates to lowering sometime next year. Friday's selloff capped off two consecutive weeks of losses for major stock indexes and largely wiped out the market's gains since late July. Meanwhile, oil prices climbed as investors balanced expectations of weaker demand with signs that the OPEC+ oil-producers group was considering cutting production at its next meeting.

The Federal Reserve will continue raising interest rates and hold them at a higher level until it is confident inflation is under control and at the 2% level. The RBI's rate setting panel is likely to opt for slowing down the pace of hikes and increase the repo rate by at least 25 bps in September. The central bank has already hiked the repo rate by 1.4% in three consecutive actions since May this year, in response to the high inflation which has been consistently breaching upper end of the tolerance band set by the government to the RBI. The Monsoon in India is ~8% above long-term average. The fourth advance estimate of production of major agricultural crops production of wheat is estimated at 106.84mn Tonnes. The reserves have declined in August to the lowest level for the month in 14 years, while consumer wheat inflation is running at close to 12%. India's retail inflation may be moderating after hitting a peak in April but there are some upside risks that will weigh on the RBI's as it decides the course of future rate hikes. We expect some profit booking to continue in the near term.

Source : Equity Bulls

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