Even as domestic investors are concerned about the impact of interest rate hikes by global central banks and global uncertainties on the Indian equity market, experts said it will impact the domestic market to some extent but strong retail and institutional participation here should help the market. can save. is having a serious impact.
Recently, the US Federal Reserve raised interest rates for the first time since 2018. There are also plans to raise rates several times this year, driven by rising costs, given US inflation at a 40-year high of 7.9 percent in February. Gas, food and accommodation.
Piyush Garg, Chief Investment Officer, ICICI Securities said, “Given the shocks to the global supply chain, the ongoing Russo-Ukraine war, rising crude oil prices and higher inflation rates globally, it is likely that the US rate hike cycle will continue. Equity may not do well during the
Currently, Brent crude oil is $114.36 per barrel.
However, he added that some stocks like information technology and banking may not feel the heat, but the consumption sector could be adversely affected.
The US Fed recently raised the target range for the federal funds rate to 0.25-0.5 per cent and estimates that an ongoing hike in the target range would be justified. Last week, its chairman, the Fed, Jerome Powell also said the central bank would raise rates “more aggressively” if necessary.
According to independent market analyst Ambareesh Baliga, “Markets could be adversely affected to some extent by the hike in US Fed rates as foreign portfolio investors are pulling their money from the country to safe-haven in the US but increasing retail participation could greatly affect the market.” Might prevent slipping too much.”
Between April and October in 2021, around 1.9 crore demat accounts were opened riding on good returns during the pandemic.
Baliga, however, said markets do not rely as much on FPI money as in earlier periods and domestic participation is expected to turn the market positive.
According to data available on the BSE website, FPI investments saw a net outflow of Rs 1,507 crore on Friday, while domestic institutional investors pumped in Rs 1,373 crore in the market on the same day.
According to the latest NSDL data, FPIs have pulled out a net Rs 1,15,272 crore from the Indian markets in the last three months till March 28.
Areas that cannot withstand the heat
According to experts, the effect of the hike in the US Fed rate will not be the same in the entire stock market. Some stocks may perform well during rate hikes while others may be heavily influenced by external factors.
“A section of IT, banking and engineering companies are now promising, which investors can look at,” said Garg of ICICI Securities.
Sensex IT companies like Tata Consultancy Services, Infosys and Wipro have given good returns in the range of 20-50 per cent in the last one year, while the BSE benchmark has gained 16 per cent.
However, Garg said risks such as non-performing assets (NPA) position and overweight of FPIs in banking could pose risks.
The banking sector has underperformed the benchmark and delivered mixed returns in the past one year. Some banking stocks such as state-owned State Bank of India (38 per cent) and private lender ICICI Bank (22 per cent) have delivered good positive results in one year, while Punjab National Bank (- 2.2 per cent) and HDFC Bank ( -4.69%) ) gave a negative return. Axis Bank grew only 4.47 per cent between March 31, 2021 and March 28, 2022.
“Information technology and pharmaceutical companies are expected to do well going forward, while banking may also do well in the NPA scenario,” Baliga said.
He added that frequent fund outflows put pressure on the rupee, which could help export-oriented sectors like IT and pharma.
concerns
Sectors most likely to be adversely impacted by the US Fed rate hike and other external factors are consumption, manufacturing and metals.
Baliga said as commodity prices are driving higher due to global supply shocks and uncertainty due to the Russo-Ukraine war, the manufacturing sector could be under pressure for the next two quarters. Therefore, investors should choose manufacturing sector stocks carefully, at least until the Russo-Ukraine war ends.
Garg said the consumption sector could be the worst hit during the US rate hike cycle, given other external factors. “This is due to the rise in commodity prices globally.”
Monetary policy tightening should be projected by the RBI to keep rising domestic inflation and inflation under the target range of 4-6 per cent. Retail inflation touched an eight-month high of 6.07 per cent in February.
ground level
Experts said investors should be cautious in proceeding in view of global uncertainty due to high crude oil prices, the COVID-19 situation and the Russo-Ukraine war, but the impact will not be uniform across the region and some industries may do well .
Baliga said that if retail investors have made good money on their investments, they can look at profit-booking now and enter the market after some time, when the uncertainty subsides.
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