Indian benchmark equity indices fell for the second consecutive week ended September 23 on the back weak global sentiments post interest after the US Federal Reserve hiked interest rates by 75 basis points. Steadily rising dollar, rupee hitting fresh low, FIIs selling, interest rate hiked by Bank of England and rise in the US 10-year bond yield, were among the other factors weighed on the investor sentiment.
In the week gone by, BSE Sensex slipped 741.87 points or 1.26 percent to close at 58,098.92, while the Nifty50 fell 203.55 points or 1.16 percent to end at 17,327.30.
In the month of September, Sensex and Nifty lost over 2 percent each.
On the sectoral front, BSE Power index fell 5 percent, BSE Realty index declined 4 percent and BSE Capital Goods index fell 3 percent. However, BSE FMCG index added 3.6 percent, BSE Healthcare and Auto indices rose 1 percent each.
In the last week, BSE Smallcap, Midcap and Largecap indices fell 1 percent each.
“The equity markets traded lower mainly tracking the developments in overseas markets especially the US. The Fed rate hike and the stance that rate hikes would continue till inflation is contained displayed in ample measure an aggressive and hawkish Fed. Even if its costs a little bit of economic growth so be it, has been the stated approach. This time around the Fed policy comes with a projection of lower growth and gradually rising unemployment," says Joseph Thomas, Head of Research, Emkay Wealth Management.
According to Thomas, this was to the dismay of many a market participant who believes that this is a confirmation of the US gradually entering a period of declining economic growth, a growth that is already slowing. This has affected the equity markets, and this has sent its reverberations across the world.
"More than anything else, it is the expectations of higher interest rates and lower liquidity that is at the back of the mind of many an investor. High inflation, widening trade deficit, weakening currencies and a likely slowdown in growth may entrap some of the emerging market economies," Thomas said.
"The policy from the RBI is expected in the next few days, and the anchoring of the policy will be keenly watched to see its implications for the market at a time when the economy is witnessing high credit growth and a shortfall money market liquidity,” he added.
Foreign institutional investors (FIIs) sold equities worth Rs 4,361.77 crore of equities in the week gone by. On the other hand, domestic institutional investors (DIIs) bought equities worth of Rs 1137.96 crore.
In the month of September till now, FIIs sold equities worth Rs 2,445.82 crore, and DIIs sold equities worth Rs 1,868.54 crore.
The BSE Small-cap index declined 1.3 percent dragged by the Vinyl Chemicals (India), Sindhu Trade Links, KBC Global, Can Fin Homes, Future Lifestyle Fashions, JSW Holdings, Navkar Corporation, Balmer Lawrie Investment and Tata Investment Corporation.
However, gainers included JTL Infra, Dish TV India, PC Jeweller, Schneider Electric Infrastructure, Hercules Hoists, Tourism Finance Corp of India, Shree Renuka Sugars, Sterling and Wilson Renewable Energy and DB Realty.
"Our market started the week on a mild note taking cues from the weak global markets, but the dip augurs well for the bulls initially, and the Nifty has seen two consecutive days of positive closure. As the week progressed, our markets seemed tentative at the higher grounds, and the weakness in the global markets eventually dragged the indices lower by the weekend. The benchmark index witnessed a correction consecutively for the second week and ended the session a tad above 17300 with a cut of over 1.16 percent to the previous week’s close," said Osho Krishan, Sr. Analyst - Technical & Derivative Research, Angel One.
According to Krishan, the last session of correction has dampened the overall sentiments as the significant support of the unfilled gap got breached decisively, implying strong momentum in the sell-off. He feels that the weakness in the global markets and the upcoming key domestic data have put a sense of tentativeness among the market participants.
"As we have witnessed a decisive breach below the major support zone in Nifty, one should not rule out the possibility of it testing the immediate swing low of 17150 odd zone, while the sacrosanct support lies at the psychological mark of 17000. On the flip side, a series of resistances could be seen starting from 17500 to 17800 in the comparable period," Krishan said.
"Considering the recent price action, traders are advised not to carry aggressive overnight bets for a while and should adapt the strategy to follow one step at a time and respect levels on either side. The unfavorable global scenario was one of the major catalysts for the fall in the week; hence, one should stay abreast with global developments and the upcoming key domestic macro data. Also, one can continue to focus on individual stocks as the thematic moves are still playing out well in the market," he added.
The BSE 500 index shed 1 percent dragged by the Can Fin Homes, Mahindra & Mahindra Financial Services, Power Grid Corporation of India, Tata Investment Corporation, PCBL, Fortis Healthcare and Mangalore Refinery and Petrochemicals.
Where is Nifty50 headed?
Apurva Sheth, Head of Market Perspectives, Samco Securities
A negative divergence that could cause a slowdown in rising momentum was noted last week. Since the recent highs, there has been a considerable drop, and it appears that bears could drag the index even further. Immediate support is now placed around 17,200 and 17,000 levels. If the index breaks this level, then we could see it drag lower to 16,600. On the upside 17,500 could act as a resistance.
The outcome of the RBI MPC meeting will be the main topic of discussion at home. After falling for three consecutive months, retail inflation rose to 7% in August.
The market anticipates a 50-bps increase in the repo rate. The information regarding foreign exchange reserves, which have decreased by 14% from their peak, will also keep the markets on edge.
Vinod Nair, Head of Research at Geojit Financial services
The extended hawkish monetary policy is bound to further slowdown the global growth engine. India is in a better position with a decoupled economy with pickup in credit growth and tax collection. However, rise in geopolitical risk and economic slowdown will affect India with a lag and weaken the performance in the short-term.
For the week ahead, investors will keenly watch the outcome of the RBI monetary policy on September 30th. There is a consensus that a 50bps rate hike will help strengthen INR. Benign oil prices and strong local demand may help the RBI to maintain the balance between growth and inflation.
We expect the market direction will be led by global developments and FIIs' action. On the valuation front, India is the most expensive stock market in the world today. Therefore, investors are advised to wait and watch until the dust settles"
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