Global factors to weigh on Indian markets

The equity markets witnessed sharp sell-off post rate hikes and hawkish commentary by central banks globally. Nifty/Sensex plunged by 691/2,225 points (-4 per cent each) to close the week at 16,411/54,836 levels. Midcap100/Small100 fell more sharply by 4.3 per cent/6.8 per cent during the week.

All the sectors ended in red with realty and media being the biggest losers – down 8 per cent/6 per cent. Foreign institutional investors (FII) continued with their selling, having sold equities worth more than Rs 7,000 crore (till Thursday) while domestic institutional investors (DII) were buyers to the tune of Rs 5,500 crore (till Thursday).

Global markets tumbled after central banks around the world aggressively raised interest rate to curb rising inflation, thus hitting economic growth. US Fed raised the rates by 50 bps while announcing start of reduction in its huge $9 trillion balance sheet.

The Bank of England too raised its interest rates to 13-year high at 1 per cent, while sharply increasing its inflation forecast for 2022 to 10 per cent and lowering the economic growth forecast to -0.25 per cent for FY23.

This spooked the global equity markets as investors feared that similar move could be adopted by other central banks. US bond yields surged past 3 per cent on expectation that central banks would have to raise interest rates at a faster pace to combat inflation.

Additionally, stringent lockdown in China has severely impacted global supply chains. Oil prices are also rising higher on persistent concerns over the tightness of global supply. The RBI governor too, in a surprise move, raised policy repo rate by 40 bps and CRR by 50 bps, citing persistent inflationary pressures in the economy. Such surprise move could have a bearing on the overall demand.

Further, higher bond yields as well as continued FIIs selling added to the overall pressure.

On the other hand, the mega LIC IPO saw good demand with IPO getting subscribed 1.2x so far on the third day. The IPO is priced attractively at 1.1x its Embedded Value which is at significant discount to listed peers and hence leaves a lot on the table for the investors.

Nifty has fallen sharply by 9 per cent from its April high of 18,115. India VIX is again on rise near 21 zones which is giving discomfort to the markets and suggesting wild swings ahead. Now, till Nifty holds below 16,660 levels, bounces could be sold for the weakness towards 16,000 zones.

Going ahead, domestic equities would continue to track global developments apart from the ongoing earning season for further cues.

(The writer is Head-Retail Research at MOFSL)