Sensex, Nifty fall 1%, here are 4 factors that are pulling the market down

US Inflation data will be out due later in the day. Consumer prices probably rose 8.4 percent in March month from a year ago, according to a Bloomberg survey of economists.

The minutes of the US Federal Open Market Committee (FOMC) meeting indicated that the Fed had agreed to begin winding down the balance sheet at the rate of $95 billion a month, likely starting in May.

The officials “generally agreed” that a maximum of $60 billion in treasury securities and $35 billion in MBS would likely be appropriate.

With regards to rate hikes, the minutes noted that many participants considered “one or more” 50 basis point increases in the federal funds target range could be appropriate at future meetings.

2 RBI's ‘hawkish’ turn

The markets were under pressure as investors weighed the likelihood of rate hikes after a hawkish turn by the Reserve Bank of India (RBI) at its policy review on April 8.

The RBI’s monetary policy committee (MPC), in a surprise move, introduced the Standing Deposit Facility (SDF) and set it as the floor for the LAF corridor at 3.75 percent, replacing the reverse repo rate, which was left unchanged at 3.35 percent.

The policy corridor now has been restored to the pre-pandemic width of 50 bps. While maintaining the repo rate and accommodative stance, the MPC guided towards withdrawal of the accommodative stance.

The MPC also revised up its FY2023 inflation projection to 5.7 percent from 4.5 percent and revised down its FY2023 real GDP growth projection to 7.2 percent from 7.8 percent.

"While the change in the policy stance to neutral in the June policy is broadly given, we see the first rate hike timing between June-August a very close call. Much will depend on the upcoming inflation prints as the RBI clearly risks the average for three quarters being higher than 6 percent,” Kotak Institutional Equities said in a note to its investors.

"The next steps towards withdrawal of accommodation will be changing stance to neutral (we expect in this in June policy), repo rate hikes (retain 50 bps hike in FY2023 with the first hike in August), and sterilizing incremental liquidity (over the medium term), if any", the note added

3 India’s inflation woes

Investors will be keenly watching India's consumer price inflation (CPI) data to be released later in the day. Analysts expect March CPI inflation to increase further to 6.37 percent from 6.07 percent in February, taking the 4Q FY22 average to 6.15 percent.

They also expect core CPI inflation to increase to 6.44 percent in March, up from 6 percent in February.

"The near term will continue to face upside risks from elevated global commodity prices and persistence of supply-chain disruptions. Given these risks, we expect the CPI inflation to average 5.8 percent in FY2023. With regards to IIP (index of industrial production), we expect the February reading to grow by 2.3 percent compared to 1.3 percent in January 2022", Kotak report said.

4 Q4 earnings

Analysts believe that consumer-focused companies such as automobiles, cement, and fast-moving consumer goods (FMCG) may either see profits shrink or stay stable for the March quarter.

Input cost inflation is expected to bite into margins in a big way and a still modest consumption demand would continue to be a drag as well.

Analysts at Kotak Institutional Equities expect the aggregate net profit of the companies belonging to the BSE-30 Index to expand by 26 percent year-on-year for Q4FY22. The Nifty 50 companies may report a net profit growth of 27 percent.

(With inputs from Bloomberg)