Despite the relief rally seen last week in global markets, the volatility is likely to continue given the beginning of the earnings season and persistent high US inflation.
US Fed now has more reason to continue with its aggressive interest rate hike in the next MPC meeting early in November. It is now expected that Fed would raise the rates by 75bps for the fourth consecutive time. Even the release of Fed meeting minutes confirmed the continuation of hawkishness going ahead till the inflation comes well under control. US Inflation came in higher than expected at 8.2 per cent but saw a slight cool-off from a 40-year high which led to a relief rally.
Domestic equities, too, would be witnessing volatility going ahead. However, a lot of stock-specific action would be seen as the earnings season unfolds. We expect Nifty to post solid 30 per cent earnings growth excluding global commodities like Metals and Oil & gas companies. This would be largely led by BFSI and Autos.
Apart from Metals & O&G, the earnings will be dragged by Cement and Healthcare. We expect sectors focused on domestic consumption/investments to outperform the sectors dependent on global demand/cyclicals/commodities. Overall we expect the Nifty EPS to grow 11 per cent/21 per cent in FY23/FY24, respectively.
For the week ahead, Nifty could take support near 17,000 levels and could see a bounce towards 17,400-17,500 zones. Tug of war is likely to continue between global and domestic factors, which would keep markets volatile.
Domestic equities faced a volatile session throughout last week, before seeing a sharp pull-back on the last day which helped pare some losses for the week. Nifty ended with a marginal loss of 129 points (-0.7 per cent) at 17,186. Sectors like IT and Banking, including capital market stocks, were in momentum after reporting good quarterly results. Relief rally in global markets, easing of crude oil prices and some short covering helped domestic indices to minimise losses for the week.
Though India’s September inflation spiked to a 5-month high, and August IIP fell to an 18-month low, a decline in India's wholesale inflation to an 18-month low of 10.7 per cent brought some cheers. For the last few sessions, Nifty has been taking support around 17k levels and is forming a strong base there. Even though buying could be seen at support zones, follow-up is missing at higher levels due to global nervousness.
(The author is Head – Retail Research, Motilal Oswal Financial Services Limited)