Global economic data, India’s fiscal deficit to drive markets

This week is likely to witness volatile market activity due to monthly F&O expiry on Wednesday, amidst the highest FII short position. On March 30, the US Bureau of Economic Analysis will release its third and final estimate for the country's real GDP change in Q4 2022. On Friday, the Reserve Bank of India will release India's weekly foreign exchange reserves data as investors also eye infrastructure output data for the month of February. On the same day, we will also receive India's external debt data and current account numbers for the fourth quarter of 2022.

The global environment continues to remain volatile with European banks coming under pressure on Friday. FIIs too have been consistent sellers for last few days, which could keep the market under pressure. Also, it would be a shortened trading week due to a holiday on Thursday on account of Ram Navami.

Last week, Indian equities fell for the third consecutive week on the back of global volatility as concerns over banking crisis continued. The US Fed’s inline rate hike however gave some respite. Nifty remained volatile throughout the week and closed below the 17k mark with a loss of 155 points (-0.9 per cent) at 16,945 levels. There was pressure on the broader market with mid and smallcap indices falling by almost 2 per cent each.

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Selling was seen across the sectors, except defensive counters like Pharma and FMCG. Globally exposed sectors like Metal (-4.1 per cent) and IT (-3.2 per cent) were among the major losers. Interest rate sensitive sectors Realty declined by -4.5 per cent while PSU Bank slipped by 3.2 per cent.

Moreover, FIIs have been consistent sellers in 10 out of last 11 days. Overall, they have sold equities worth Rs.13,500 crore, since the start of the banking turmoil.

The US Federal Reserve in its policy meeting on March 22 raised interest rate on expected lines by 25 bps to 5 per cent, to strike balance between curbing inflation and averting further cataclysm in the banking sector. The committee commented it would continue with its rate hike trajectory for one more session though no clarity was given on pause/rate cut, which led to a fall in the global market. Furthermore, Treasury Secretary Janet Yellen's statement that it would not consider extending additional deposit insurance to all banks added fuel to the fire.

The Bank of England also increased its rate by 25 bps in line with the US central bank to tackle soaring inflation despite concerns about the economic fallout from troubles in the global financial system.

The auto sector was in focus and saw some buying interest after several large players announced price hike ahead of implementation of BS-VI Phase 2 emission norms from April 1. Auto index had come under pressure led by concerns of rising inventory levels. OEMs like Tata Motors, Maruti and Hero Moto announced price hikes in the range of 2-5 per cent.

Malaysian palm oil futures came under pressure and fell to its five-month low, dragged by deep losses in rival edible oils, crude, strong Malaysian ringgit and a weak global environment. We expect fall in prices to benefit FMCG and QSR companies as palm oil forms a key raw material.

The government on Friday passed the Finance Bill 2023 in Lok Sabha. As per the amendments, STT on the sale of options and futures has been increased. However, the clarity related to the hike is awaited. The bill also proposed to remove long-term indexation benefits for debt mutual funds.

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