JOIN USMarkets bleed fifth week in a row
Equity markets continue with their sharp sell-off for the 5th week in a row as inflation continues to be a major concern for the investors. Weakening economic growth outlook, prolonged Russia-Ukraine war, volatility in commodity prices, continued foreign institutional investor (FIIs) selling and rising bond yields and dollar index have marred market sentiments.
Nifty/Sensex plunged by 629/2042 points (around -3.8%/-3.7%) to close the week at 15,782/52,794 levels. The broader market fell more sharply with Midcap100/Small100 down by 5.2%/8.0% during the week and all the sectors ending in red.
FIIs continued with their relentless selling, having sold equities worth almost Rs 20,000 crore while domestic institutional investors (DIIs) were buyers to the tune of Rs 18,000 crore.
Global equities witnessed a sharp fall after the US inflation data rose to 8.3%, hinting at more aggressive tightening by the US Federal Reserve.
However, some relief rally was seen towards the end of the week as investors took comfort from Federal Reserve Chairman Jerome Powell’s comments suggesting that it is not actively considering an aggressive (75bps) interest-rate hike.
On the domestic front, sentiments remained fragile, as retail inflation in April jumped to an 8-year high of 7.8%, thus raising bets of aggressive rate hikes by the RBI.
Other macro data too were not supportive with Index of Industrial Production (IIP) growth in March 2022 at just 1.9% and trade deficit in April 2022 widening to $20.11 billion. Rupee also plunged to an all-time low of 77.63 on the back of reserve banks' aggressive stance to curb inflation and strength in the US dollar.
The dollar index on the other hand touched a 20 year high of 104.5.
On the positive side, Skymet has released its monsoon forecast for 2022 which indicates a ‘normal’ monsoon to the tune of 98%.
Markets have suffered a rollercoaster week as investors reacted to surging inflation data and its impact on economic growth. The expected rate hike cycle continues to remain a key overhang for equity markets globally. Nifty has corrected by 15% from its 52 week high.
On the other hand Nifty Midcap 100 and Smallcap 100 indices witnessed deeper cuts - down 19%/28% from their respective highs – entering into a bear grip. Nifty is now retesting its March low of 15,671 and a close below this can further add to the downside in the market.
India VIX spiked to 25 zones during the week – which is at 7 week high, indicating that uncertainty may continue in the market for some more time. Nifty is struggling to cross 16,000 zones with selling emerging at higher levels.
While the markets are oversold, we expect both volatility and weakness to continue next week as well given the weak global cues. Also, continuous FII selling in index heavyweights could limit the upside on any possible bounce.
(The writer is the Head of Retail Research at Motilal Oswal Financial Services Limited)