Mr. Mitul Shah - Head of Research at Reliance Securities.
Domestic equities erased earlier gain and closed slightly higher. Nifty rose 0.2%, Nifty Mid Cap was up 0.3% while Small Cap was largely flat. Sectoral indices ended mixed. Nifty IT was major gainer which climbed 2.2%, followed by Nifty Pvt Bank which was up 0.6%. Nifty Reality and Nifty Fin Service were the major laggards which plummeted 0.5% and 0.4% respectively. Meanwhile, declining rice output will likely to push food inflation across several nations. Food Secretary indicated that rice production in the 2022-2023 crop year could fall by 7-8 mn tonnes or up to 12 m tonnes in a worst-case scenario.
U.S. equities closed higher as S&P 500 rose 0.7%, Dow Jones gained 0.6%, while Nasdaq added 0.6%. The yield on the benchmark 10-year Treasury note ticked higher to 3.301% from 3.264%. FED chair believes that the central bank needs to act strongly to tame price pressures and prevent the public from thinking of high inflation as the norm. The market expects a third consecutive 75 bps rate hike by FED. Meanwhile, the ECB, opted to raise its key interest rate by 75 bps.
India's GDP data for Q1FY23 came in at 13.5%, but still lagged the consensus estimate of 15.2%. Total FDI shrank 0.79% to $22.34bn in the June quarter. Moreover, Unemployment rate in urban areas eased to 7.6% in Q1FY23 from 8.2% in the trailing quarter. India's GDP growth is expected at 7% in FY23, although challenges remain in the form of the global slowdown, geo-political uncertainties and policy tightening. The RBI is likely to opt for slower pace of hikes in forthcoming meeting. The RBI 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 RBI's tolerance band. India's retail inflation may be moderating after hitting a peak recently.