Fears of Fed rate hike, dull earnings, sinking rupee and all that drive market into red

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The Indian markets opened over 1.3 percent lower on Monday amid expectations that the further tightening to continue by the US Federal Reserve. On Friday, Dow Jones fell by 2.1 percent, the S&P 500 slipped 2.8 percent, while Nasdaq shed 3.8 percent.

Investors are now awaiting India's consumer price inflation data for September on October 12. Investors will also watch US September CPI print and FOMC minutes.

"More than domestic factors, external factors such as global slowdown, geopolitics-led risks to energy prices, dollar strengthening, and higher-for-longer global inflation and rates (implying risks of lower-for-longer global growth) will weigh on India’s macro outlook," said recent Kotak Institutional Equities note.

There are a host of macro fundamentals that weighed on the markets on Monday morning. Let's take a look.

Fear of Aggressive Rate Hike by Fed

Investors anticipate that the US central bank will go for stricter tightening of policy rates after two Federal Reserve governors backed continuing with the rate hikes to tame soaring inflation. On Friday, Governors Christopher Waller and Lisa Cook said the Fed needed to keep raising the interest rates into early next year to bring down the stubbornly high inflation.

This came on the back of the US jobs data. American employers hired more workers than expected in September, while the unemployment rate dropped to 3.5 percent. Analysts said the surprisingly low US unemployment rate implies that the Fed will have to continue raising interest rates longer than the markets had discounted.

Surging Crude Oil & Dollar Index

Investors were worried because of a surge in crude oil prices, US treasuries and the dollar index. International crude oil advanced past $97 a barrel with surging for a fifth straight session spurred by a production cut by the OPEC+. Brent crude rose over 8 percent in this period. Crude prices eased marginally on Monday morning, shedding around 1 percent to $97.03 a barrel.

The 10-year US treasury yields jumped nearly 22 basis points since the last four sessions, while the Dollar Index rebounded from 109.80 to 112.79 in the last one month. Investors are now awaiting the US September CPI print due on Thursday and FOMC minutes due on Wednesday.

Anticipation of Dull September Quarter Earnings

Indian firms likely to report dull earnings growth for the September quarter. Even though auto and banking firms may report strong earnings growth, analysts expect the rise in aggregate profits will be muted, dragged down by EBITDA losses at oil marketing companies and smaller profits at upstream oil companies. Cement, consumer durables margins could see pressure due to high input cost, while weak realisation may see for metal firms. For IT firms rising cost and high attrition have continued to remain key challenges, analysts said the fall in some major global currencies is eroding the benefits of a strong dollar.

Lower Economic Growth Projection 

Market sentiment turned weaker after the World Bank downgraded India's economic growth forecast to 6.5 percent for FY23, citing deteriorating international environment. With this, the bank joins a number of agencies that have revised down their India forecasts after the June quarter GDP data were out. Fitch recently cut its FY23 forecast for the country to 7 percent from 7.8 percent, Moody's trimmed its projection to 7.7 percent from 8.8%, Goldman Sachs to 7 percent from 7.6 percent, and Citigroup to 6.7 percent from 8 percent. The RBI, too, lowered the FY23 GDP estimate to 7 percent from 7.2 percent.

Rupee Hits Fresh Record Low

The Indian rupee weakened to a fresh record low against the US dollar, tracking losses in its Asian currencies markets. The currency hit an all time low of 82.72 a dollar on Monday. It depreciated nearly 1.5 percent in the last three sessions. Analysts anticipate the currency to move in the range of 82 to 83.15 a dollar this month.