Mr. Mitul Shah - Head of Research at Reliance Securities.
Indian equities started the week on a lower note, after weak global cues following signs of further aggressive rate hike by U.S. Fed. The Nifty fell 1.8%, while broader markets under-performed the main indices as Nifty Mid Cap and Nifty Small Cap lost 3.1% and 3.4% respectively. All Sectoral indices ended in red except Nifty IT which gained 0.6%. Nifty realty was laggard which plunged 4.3%, followed by Nifty Metal (-4.1%). USDINR ended at fresh record closing low at 81.62, after hitting intraday low of 81.66. The dollar scaled a 22-year high and bonds sold off again as fears grew that a central bank prescription of raising interest rates to tame inflation will drag major economies into recession.
U.S. equities closed lower for the week on the fear of further aggressive rate hike by U.S. Fed. 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 dollar scaled a 22-year high and bonds sold off again as fears grew that a central bank prescription of raising interest rates to tame inflation will drag major economies into recession. The 10-year U.S. Treasury held near 3.7%, the highest level since 2010. The U.S. equities trading lower after Federal Reserve officials raised interest rates by 75 basis points for a third straight time last week and Chair Jerome Powell implied in hawkish remarks that policymakers were prepared to accept economic pain in exchange for restoring price stability.
The domestic equity also closed lower during the week following weak global with Nifty falling by 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. A 75 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. 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 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.