Indian markets witnessed intense selling pressure on Friday tracking global peers as investors expressed panic over rate hike guidance from the European Central Bank for upcoming US inflation data. Additionally, rising crude oil prices, FII selling and rising US Treasury yields meant that the rupee slipped to fresh lows. On Friday, the Sensex and Nifty closed down 1.84% and 1.68%.
Dr. Joseph Thomas, Head of Research, Emkay Wealth Management, said that “Equity markets across sectors, market capitalization and trading are trading lower due to several proximate factors, which are mainly global factors. Once again Shanghai closures,” said Thomas. , low global economic growth prospects, as well as expectations of some key numbers like the CPI numbers for the US and India are factors that have created some gloom in the market segment.
Investors expressed concern about next week’s US Fed meeting. Analysts say though 50 bps rate hike is expected, the Fed’s decision also hinges on the latest US inflation data, to keep investors alert ahead of the event. In the interim, the US 10-year Treasury yield moved above 3% again. In addition, the European Central Bank has already decided to end its long-running stimulus plan and will next month raise interest rates for the first time since 2011, followed by a major change in September, which has attracted investors. Keep emotions under control.
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From India’s perspective, Brent prices are increasingly restless as these global factors weigh in. On Friday, Brent traded at $127.95 a barrel, which is much higher than the $100 level nearly a month ago. Foreign portfolio investors (FPIs) have been selling and putting pressure on the rupee, which is regularly hitting new lows.
On Friday, the Indian rupee fell to a new record low of 77.87 against the dollar.
Anindya Banerjee, VP, Currency Derivatives and VP, Anindya Banerjee, said rising real rates in the US due to the Fed’s sharp rate hike, slowing global growth and rising oil prices are driving money towards the US dollar and depreciating the dollar. Strengthening against most currencies including Indian Rupee. Interest Rate Derivatives at Kotak Securities Limited
Aggressive policy rate hikes are pushing US benchmark bond yields higher, which is also pushing up the dollar. Sriram Iyer, Senior Research Analyst, Reliance Securities, said oil could continue to rise and the rupee could be impacted.
Analysts said the dollar is finding support at lower levels ahead of Friday’s US inflation numbers and next week’s FOMC policy statement. Gaurang Somaiya, Forex & Bullion Analyst, Motilal, said, “The expectation is that the Fed can continue raising rates and maintain its aggressive stance and we expect USDINR (Spot) to trade with a positive bias and slow down.” -Slowly moving towards 78.50 level.” Oswal Financial Services
The strengthening of the dollar index is affecting the rupee and the rise of the rupee is not good for the Indian economy. The country depends on imports to meet its crude oil requirements. Higher crude also impacts earnings of most corporates facing the heat of higher costs. Unsurprisingly, all this is adding to the volatility in the equity markets.
Mitul Shah, Head of Research, Reliance Securities, said: “Current crude oil prices add to the currency effect on the economy due to the import bill and the continued depreciation of the rupee will continue to impact the Indian equity markets.”
While rupee movement, crude oil prices, inflation, volatility in commodity prices and central bank’s measures are key factors for market performance in the near to medium term, experts said the progress of monsoon should be gauged by food. Inflation will be seen to calm down. On the other hand, the rising number of Covid cases can be a dampener for the sentiment.
“The RBI policy announced this week focused on liquidity normalization and withdrawal of accommodative policy, which may have a negative impact on the markets in the coming weeks,” said Thomas of Emkay Wealth.
In the absence of any major domestic events, the markets will continue to take cues from the global markets. Ajit Mishra, VP – Research, Religare Broking Ltd. said, “First of all, participants will respond to US inflation data and will also focus on upcoming macroeconomic data (IIP, CPI and WPI).