Mr. Mitul Shah - Head of Research at Reliance Securities.
Indian equities closed lower ahead of RBI's interest rate decision. The Nifty fell 0.3%, while Nifty Mid Cap and Nifty Small Cap were down about 0.5% and 0.2%. Majority of indices ended in red except Nifty FMCG (+0.3%), Nifty PSU Bank (+1.3%) and Nifty Oil & Gas (+0.2%). Nifty IT was the primary laggard which fell 1.5%, followed by Nifty Media and Nifty Metal which were down 1% and 0.8% respectively. Meanwhile, the World Bank has upgraded India's GDP growth forecast to 6.9% from 6.5% earlier, for FY23. It sees average retail inflation at 7.1% for the year.
The U.S. equities fell sharply despite strong data, a sign that the Federal Reserve will continue to raise interest rates throughout the next year. The S&P 500 dropped 1.8%, pulling back after a November rally. The Dow Jones declined 1.4% while Nasdaq lost 1.9%. Fed officials have signalled plans to raise their benchmark interest rate by 50 bps next week, which would mark a slowdown from recent meetings. The yield on the 10-year U.S. Treasury note rose to 3.598%, from 3.502% Friday. The Institute for Supply Management's reading on the services sector in November came in at 56.5, up from 54.4 in October and above expectations of 53.7. Factory orders in October were up 1%, according to the Commerce Department, above market expectations for a rise of 0.7%.
The global economy continues to face inflationary pressures though the recent commodity and food price softening may boost demand going ahead. RBI's rate-panel is expected to increase repo rates by 25-35bps in its meeting from 5-7 Dec '22, followed by the FED which may raise rates by another 50bps on Dec. 14. The movement of rupee against the dollar, FII flow and crude oil prices will affect markets in the near term. The endless Russia-Ukraine crisis and massive protests in China against the Zero-COVID policy remain the major global concerns.