Hawkish US Fed, inflationary pressures, and FII selling spooked global markets last week. What lies ahead?

SUMMARY:

• Indian equity benchmarks ended the passing week with a decline of around three per cent amid global uncertainty.
• the BSE Realty index slipped the most (4.3 per cent) during the week gone by. While BSE Metal and BSE Healthcare indices have registered a loss of 3.3 per cent, and 3.2 per cent, respectively.
• In the US, the Dow Jones index declined 1.9 per cent, while the tech-heavy Nasdaq index tanked 3.6 per cent during the week.

Indian equity benchmarks ended the passing week with a decline of around three per cent amid global uncertainty. US Fed signaled to keep interest rates at an elevated level through 2024 after one more rate hike this year.  Dr. Joseph Thomas, Head of Research, Emkay Wealth Management said that the equity markets traded lower from early this week till the last trading day, mostly swayed by developments around the US monetary policy and US markets.

Though the Fed announced a hold on the Fed Funds Rate, the guidance on future rates left a strong probability of future rate hikes, at least one before the end of this year. “That there may be further rate hike rattled the markets with the US markets losing altitude first and followed by Europe and Asian markets. There is also an element of profit booking that is at work, though this may be a passing one, as also some selling by FPIs”. The factors that have influenced the markets may continue to exert some pressure in the coming week too, Thomas said.

The BSE Sensex declined 1829 points, or 2.7 per cent, at 66,009 during the week ended September 22, while the Nifty tanked 518 points, or 2.57 per cent, to 19,674. Sector-wise, the BSE Realty index slipped the most (4.3 per cent) during the week gone by. While BSE Metal and BSE Healthcare indices have registered a loss of 3.3 per cent, and 3.2 per cent, respectively. On the other hand, the BSE Power index has registered a weekly gain of 0.1 per cent.

As many as 16 stocks in the Nifty 50 index delivered a positive return for investors in the week. With a weekly gain of 2.5 per cent, Power Grid emerged as the top gainer in the index. It was followed by Asian Paints (2.5 per cent), Coal India (1.5 per cent), Titan Company (0.7 per cent), and NTPC (0.7 per cent). On the other hand, HDFC Bank, Ultratech Cement, and Dr. Reddy’s Laboratories declined 8 per cent, 6.3 per cent, and 5.3 per cent, respectively. Wipro, JSW Steel, Reliance Industries, ICICI Bank, Tata Steel, and Cipla also fell over four per cent.

Global Market Performance: Last week, major equity Indices around the globe experienced increased selling pressure. In the US, the Dow Jones index declined 1.9 per cent, while the tech-heavy Nasdaq index tanked 3.6 per cent during the week that ended on September 22.

While in Europe, on a weekly basis, the German equity index DAX was down 2.1 per cent, the British stock benchmark FTSE100 slipped 0.4 per cent and the French CAC 40 index plunged 2.6 per cent.

In Asia, the Japanese index Nikkei 225 dropped 3.4 per cent, Straits Times index of Singapore tanked 2.1 per cent, on the other hand, the Chinese stock market Shanghai Composite Index surged 0.5 per cent last week.

Market Macros 

Vinod Nair, Head of Research at Geojit Financial Services said that throughout the week, investor sentiment was plagued by concerns of impending rate hikes driven by inflationary pressures. “Rising crude oil prices, attributed to expectations of increased demand in China coupled with supply cuts, contributed to these inflation concerns.

He added, “Although the Fed chair opted to maintain existing interest rates, the suggestion of potential future rate hikes in response to inflationary pressures led to rising US bond yields and a stronger US dollar, prompting investors to seek refuge in safe-haven investments. This cast a shadow over the domestic market and displayed a bearish trend.”.

Amid these conditions, PSU bank stocks saw gains, partially due to India’s inclusion in JP Morgan’s Government Bond Index, which resulted in a decline in bond yields. However, overall, risk-averse sentiment prevailed, driven by the ongoing ascent of US bond yields and concerns regarding the possibility of higher rates persisting for an extended period, Nair said.

Technical Outlook:

Rupak De, Senior Technical analyst at LKP Securities said “Nifty experienced consistent selling pressure throughout the week, resulting in a decline of 2.80 per cent from its all-time high. This recent correction has caused it to dip below the critical 21-day Exponential Moving Average (21EMA). The sentiment appears bearish at this point, with a key support level identified at 19,600. A breach below 19,600 could potentially initiate a more significant market correction. On the upside, 19,800 is expected to serve as a resistance level.”

admin

Business journalist at Buzindex. I have five year’s experience in equity research, and two years of experience in news scanning and writing. I love to play with data and write reader-friendly articles based on the analysis. I like to analyse stock markets, economy, and geopolitics. My other hobbies are playing cricket, reading, and watching movies. I did my graduation from CCSU. Anyone can easily get in touch with me through social media platforms.

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