Explained | Key global and domestic triggers this week as analysts expect market volatility

Bombay Stock Exchange (BSE) | Representational Image

Ahead of the US Federal Reserve's interest rate decision and the release of domestic inflation data, analysts believe that stock markets are likely to stay volatile until the existing headwinds subside.

On March 14, the S&P BSE Sensex gained 0.92 percent to 56,059.62 and the NSE Nifty 50 Index rose 0.68 percent to 16,743 points as markets surged for the fifth consecutive session.  Last week, the Sensex jumped 1,216.49 points or 2.23 percent, while the Nifty advanced 385.10 points or 2.37 percent.

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Global factors

The Federal Open Market Committee (FOMC) meeting outcome on  March 16 and the ongoing Russia-Ukraine geopolitical conflict will be the key global factors this week.

 1. US inflation at 40-year high: In the United States, consumer price inflation jumped to a 40-year high, as consumer prices surged 7.9 percent year-over-year in February 2022, culminating in the largest annual increase since January 1982.

2. Fed rate hike: The market expects the  US central bank to raise the Fed funds target rate by 25 basis points at the conclusion of the monetary policy meeting. With inflation nearly four times the US central bank's two percent target, economists are expecting as many as seven rate hikes this year.

3. Russia-Ukraine crisis impact: The Russia-Ukraine war has driven up prices of crude oil and other commodities. The high rates have also resulted in supply shortages as global inflation is set to accelerate further in the months ahead. The war could push inflation higher as Russia is the world's biggest exporter of crude and oil products combined.

4. Crude oil prices: Last week, US President Joe Biden announced a ban of Russian oil imports to the US - a move that could drive up US energy prices. The Brent crude futures and US West Texas Intermediate (WTI) have surged since Russia's invasion to Ukraine and are up roughly 40 percent for the year to date.

Also Read: As markets rise for fifth session, a look at the factors driving the sentiment

Domestic triggers

On the domestic front, retail inflation data, wholesale inflation numbers, crude oil prices, and FII's behaviour will be key triggers for stock markets in the current holiday-shortened week. Equity markets would remain closed on March 18 for Holi.

 1. WPI inflation: India's inflation based on the Wholesale Price Index (WPI) rose to 13.11 percent in February 2022 from 12.96 percent in January, according to government data. High WPI inflation is seen as a precursor to higher consumer prices as producers pass on rising costs to customers. This is the 11th consecutive month in which WPI has been in double digits.

 2. Retail inflation data: The consumer price index-based inflation data for February 2022 is expected to be released later on March 14. In January, India's headline inflation rate based on CPI jumped to a seven-month high of 6.01 percent and marginally surpassed the Reserve Bank of India's comfort zone of four-to-six percent.

3. Oil prices: As India imports about 85 percent of its oil needs, foreigners are selling stocks at a record pace and the exodus has sent the rupee to a record low. The benchmark S&P BSE Sensex is down 2.9 percent since February 23 shows that the country is likely the most vulnerable to surge in Brent crude. Investors are watchful of a hike in domestic fuel prices, as per analysts.

4. FPI selling: Continuing the selling spree for the sixth straight month, foreign portfolio investors (FPI) have pulled out a net Rs 45,608 crore from the Indian markets in March so far.  Overseas investors fear that India would be impacted more by commodity price hikes, particularly in crude oil.

5. FII and DII data: Foreign institutional investors (FIIs) continue selling in India. They net sold shares worth Rs 2,263.90 crore on March 11, while domestic institutional investors (DIIs) bought equities worth Rs 1,686.85 crore, as per provisional data available on the NSE.

What analysts sayInvestor sentiments were boosted on the back of BJP’s historic win in Uttar Pradesh during the state polls last week, as per analysts.

Siddhartha Khemka, Head of Retail Research, Motilal Oswal Financial Services expects markets to stay volatile until existing headwinds subside.

"With election results over, equity markets will move on to more important aspects in the near term Russia-Ukraine geopolitical conflict, US Fed rate hikes, elevated crude oil prices, and RBI's response to rising inflationary pressure in the economy,'' said Khemka.