Mitul Shah - Head of Research - Institutional Desk, Reliance Securities Ltd.
Indian equities ended lower with Nifty collapse 1.8%, broader markets under-performed the main indices as Nifty Mid Cap and Nifty Small Cap were down 3.8% and 4.7% respectively. All sectoral indices ended in red. Nifty PSU Bank lost the most at 6.1%, followed by Nifty Media and Nifty Metal which were down 5% and 4.5% respectively. Hawkish statements by central banks indicating continuity in rate hikes, growing global recession worries, and now surging Covid cases in several countries led to collapse in the market.
The U.S. equities fell after economic data pointed to a strong labor market and faster economic growth than previously thought. The S&P 500 tumbled 2%, the Dow Jones Industrial Average fell 1.5% and the technology-focused Nasdaq Composite lost 2.8%. 10-year Treasury notes traded at a yield of 3.677%, down from 3.684% Wednesday. Weekly data published showed 216,000 people filed initial claims for unemployment benefits last week, up 2,000 on the week before. A third estimate of economic growth last quarter, meanwhile, suggested output expanded at an annual pace of 3.2%. That is faster than the previous estimate of 2.9%.
Major central banks globally have made it clear that the monetary policy tightening is expected to continue going ahead. The RBI recently raised interest rates by 35bps while FED, ECB and Bank of England followed with a 50bps hike each in order to tackle inflation. In India, inflation numbers have softened as November CPI inflation dropped to 11-month low. WPI inflation for the same month has crashed to a 21-month low. This has been mainly because of softening food and commodity prices, which will in all probability play a decisive role in RBI's policy action in February. Moreover, the ongoing Russia-Ukraine crisis remains a major concern while in China, there has been a massive rise COVID cases post the easing of Zero-COVID policy. The markets are likely to remain volatile in the coming weeks.