Fed's emergency meeting, India's inflation data to drive markets

This week, investors would be eyeing the February inflation data, set to be released on March 13 (CPI) and March 14 (WPI). On Monday, the US Federal Reserve will hold a closed-door meeting of its board of governors to review and determine the advance and discount rates to be charged by the Federal Reserve banks. The European Central Bank meeting would be another key global event to watch out for. Other crucial factors include release of US's CPI data for the month of February on March 14 and the Federal Reserve's FOMC meeting scheduled to be held on March 21-22.

Federal Reserve Chairman Jerome Powell in his recent speech cautioned that interest rates are likely to be higher than previously expected and thus markets now once again expect a 50 bps rate hike in the upcoming Fed meeting. US jobs data released late on Friday is also crucial for the upcoming Fed meeting as it could also influence the Federal Reserve's rate decision. Therefore, market volatility is expected to continue in the near term.

Last week, domestic indices reversed gains of the previous week triggered by hawkish US Fed commentary and concerns over health of US-based Silicon Valley Bank. They started the week in a festive mood but the sentiments soon turned sour post global uncertainties, resulting in Nifty ending the week with a loss of 181 points (-1 per cent) at 17,413 levels. Barring energy and infra, all sectors ended in red with major selling seen in banking and realty stocks.

Global markets too witnessed a sell–off in the past week as aggressive rate hike concerns resurfaced again. Additionally, a 60 per cent crash in Silicon Valley Bank stock price further dented sentiments, with banking stocks taking a beating on worries that other banks too might be struggling with liquidity and the rising interest rates situation might further aggravate the crisis. Thus, the fall in the US banking index added to the overall global uncertainty regarding the quantum of the next Fed rate hike.

While a majority of the sectors witnessed selling, some of the niche sectors like power, sugar and capital goods were in the limelight last week. Power and utility companies saw a lot of buying interest as demand for power peaked out in the month of February. In fact power demand and consumption are expected to report double-digit growth for the March quarter as IMD predicts heat waves across India that will lead to use of more electricity, even as industrial usage is already scaling new highs. Sugar stocks rose following a rise in global sugar prices as concerns are mounting with regards to changing weather patterns which along with logistic issues is likely to impact sugar supplies in Brazil. On the other hand, the Indian government is likely to allow a higher limit on sugar exports. Capital goods and infra too are finding favour among investors amid early signs of a revival in the capex cycle. Thus, sectoral churn is continuously taking place in the market and is likely to continue till uncertainties loom.

(The writer heads Retail Research at Motilal Oswal Financial Services Limited)