Moneycontrol Pro Panorama | Markets get a bad cold from global chill

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Indian investors were spooked as they woke up to weak global cues on Thursday. As Japan’s Nikkei opened with a sneeze, other Asian markets shivered. Hong Kong’s Hang Seng, China’s Shanghai Composite, South Korea’s Kospi and even Australian indices tumbled to multi-month lows. Indian equities cracked too, with the BSE Sensex and Nifty nosediving 1,200 points and 350 points, respectively, by noon.

Undoubtedly, it was the Powell punch that hit markets hard. That the US Fed is on a taper path, as indicated at the end of the two-day FOMC meet (25^thand 26^thJanuary), is hardly surprising. What’s unnerving equity markets is expectations of fast-paced lift-off in interest rates and possibility of more than three rate hikes in calendar year 2022. This article by MC Pro Research has some interesting takeaways on the rollback in the Fed’s accommodative monetary policy stance.

Taper tantrums are sure to have an impact on money flows into equity markets. Also, it seems like the policy tightening is happening in a slowing economy. The crucial question, therefore, is whether growth is really as strong as the US Fed believes it is, as pointed out by Manas Chakravarty here. The debate on Fed policy rates doesn’t end here. This FT article raises another pertinent question on the bigger risks looming from policy error the Fed has already made.

While all eyes are on the Fed, there are other global tremors rattling markets and investor confidence. Oil is on the boil once again on the back of escalating geopolitical tensions between Ukraine and Russia. Brent crude prices crossed the $90 per barrel mark since 2014 on concerns of supply constraints, given that Russia is among the largest producers of oil and natural gas in the world.

Cut to home turf, the high crude price is bad news for India Inc that relies heavily on oil imports. Even otherwise, the December quarter earnings started on a subdued note. As most analysts reckon, while they are not disappointing, there is no reason for any significant earnings upgrade.  Even the big IT companies fell short of expectations on earnings growth. While manufacturing companies state that the worst is behind in terms of cost pressures, there is uncertainty on how growth would pan out in the months ahead.

The next few trading sessions may see Indian equity indices jittery, given that the Union Budget is round the corner. It is often termed a ‘non-event’ from markets perspective. But given that global tremors are likely to persist in the near term, any let-down in Budget expectations, may precipitate negative sentiments.

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Vatsala Kamat
Moneycontrol Pro