The Week Ahead: US Fed policy to drive markets

Indian markets are likely to trade in a broad range with negative bias next week as the US Fed monetary policy is due on September 21. Most investors are expecting a rate hike of at least 75 bps while some economists are also forecasting an aggressive 100-basis-point hike given the recent spike in US consumer inflation to 8.3%.

Also, the Fed’s commentary would be important to understand the future course of hikes as well as the longevity of the rate hike cycle. Even the Bank of England is likely to announce a 50-basis-point rate hike to combat inflation and this could keep global markets under pressure.

On the sectoral front, tech major Accenture would be announcing its quarterly results along with its guidance for the remaining year. This would be significant for Indian IT stocks, as they have been underperforming lately on fears that a recession in the US could lead to a slowdown in revenue growth and deal wins.

The logistics sector would be in flavour after the National Logistics Policy (NLP) was released by the government on September 17, with an aim to accelerate freight movement and bring down logistics costs from 14% to 8% in the next five years.

While Nifty 50 continues to shy away from its all-time high of 18,600, three major indices Nifty Bank, CNX Auto and Nifty Next 50 touched their record highs during the week.

Tyre stocks displayed strong momentum on the back of a fall in key raw material prices including oil and rubber. Cement stocks too were in limelight ahead of the board meeting of the Adani-owned Ambuja Cements where announcements related to capex as well as acquisition plans were expected. In the board meeting, the company approved the issue of convertible warrants worth Rs 20,000 crore to Harmonia Trade and Investment at Rs 418.87 each.

The momentum in mid-cap cement stocks is likely to continue on the back of the expectation of increased M&A activities by bigger players due to changing industry dynamics.

Though the Indian markets displayed strong resilience to the global uncertainty throughout the week, they finally wilted under pressure on the last day of the week. Nifty seems to be getting nervous around the 18k mark and is unable to sustain gains above that level. On Friday it nosedived sharply, wiping out the entire week’s gain, and ending the week with a loss of 347 points at 17,531. Since Nifty could not sustain above the critical 17,700-17,800 zones, the overall setup has turned weak for the short term.

We believe nervousness would be there for the next few days until the US Fed rate action is over.

(The writer is Head – Retail Research, Motilal Oswal Financial Services Limited)