Mr. Mitul Shah - Head of Research at Reliance Securities
U.S. equities closed lower for the week on the fear of further 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. On Friday S&P 500 plunged 1.7%, Dow Jones shed 1.6%, while Nasdaq was down 1.8%. For the week, all three indices fell in the range of 4-5% testing fresh 2022 low. The 10-year U.S. Treasury held near 3.7%, the highest level since 2010. In commodity markets, crude oil fell sharply.
The U.S. equities trading lower after Federal Reserve officials raised interest rates by 75 basis points for a third straight time earlier this week and Chair Jerome Powell implied in hawkish remarks that policymakers were prepared to accept economic pain in exchange for restoring price stability. Central banks around the world have followed suit in recent days.
On Domestic front:
The domestic equity also closed lower during the week following weak global. The US Federal Reserve's hawkish undertone on interest rate fuelled uncertainty in the market. For the week, Nifty fell 1.2%, while Nifty Mid Cap and Small Cap fell 1.3% and 2.3% respectively. Most of the sectoral indices ended in red. Nifty Energy plunged the most at 4.4% followed by Nifty Reality and Nifty Infra which were down 3.9% and 3.3% each. A75 bps rate hike by the Fed had already been priced in, but, more than expected hawkish commentary impacted the market further. The US and Europe are all headed towards a recession, while India in all likelihood to prevent it very well. The Bank of England raised its key interest rate by another 50 bps to 2.25%, matching its half-point increase last month, the biggest hike in 27 years. In the global downturn, there is a silver lining on domestic front, with strong macros in key frequency indicators. The market will follow RBI policy review coming up next week. MPC will be holding its three-day meet between September 28-30th, where 50 bps hike is not ruled-out.
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 - inflation forecast, Comments on external balance sheet, the tone of the policy statement and path on rate normalization.