Mr. Mitul Shah - Head of Research at Reliance Securities.
Indian equities closed lower on negative global cues due to aggressive rate hike by U.S. Fed and slowing Chinese economy growth. The Fed has clearly signalled that it is willing to tolerate a recession to get inflation back in control. The Nifty fell 1.7%, while broader markets under-performed the main indices as Nifty Mid Cap and Nifty Small Cap lost 2.8% and 2.5% respectively. All Sectoral indices ended in red. Nifty PSU bank was major laggard which plunged 4%, followed by Nifty Realty (-3.1%).
U.S. equities dropped following interest-rate increases from the Federal Reserve and other central banks, which have added to fears that the battle to control rising prices could bring a recession. The S&P 500 lost 0.8%, Nasdaq fell 1.4% while Dow Jones was down 0.4%. The 10-year yield hit 3.705%, from 3.511% on Wednesday, setting new highs in more than a decade. The market is in corrective mode by persistently high inflation and central banks' moves to tighten financial conditions in response.
After FED, the RBI may also take a hawkish stance to fight against the inflationary pressure. The RBI is likely to increase the repo rate by 50 bps in the next week's MPC meeting. The inflation has remained above the upper tolerance band of RBI for the eighth straight month and therefore it is expected to remain sticky at ~7.5% in FY23, driven by increases in food prices as per high frequency food price trend. The Indian economy faces headwinds from geo-political tensions, rising financial market volatility, tightening financial conditions and recessionary concerns. The rise in repo rate coupled with the inflation is likely to impact the market in the near term. Going forward, the key events for the markets includes - I) Changes to growth and inflation forecast, II) Comments around comfort on external balance sheet and III) Tone of the policy statement and path on rate normalization.