Key support. Equity market brushes off Fed hike impact, yields rise

The Indian equity market shrugged off weakness in global markets due to the US Fed’s aggressive 75 basis points rate hike and ended with a miniscule loss, even as Government Securities (G-Secs) took a beating and the rupee closed weaker.

Market analysts said strong buying by foreign portfolio investors (FPIs) in the cash market and short covering in the derivatives segment by various market participants led to the Indian market holding up. The Sensex fell just 0.11 per cent or 69 points to close at 60,836. The Nifty index declined 0.17 per cent or 30 points to close at 18,052.

The latest Fed action is the fourth 75 bps hike in a row, with Chair Jerome Powell stating that it is very premature to be thinking about pausing. The ultimate level of interest rates could be higher than previously expected.

Siddhartha Khemka, Head of Retail Research, Motilal Oswal Financial Services Ltd, said: “Indian markets stood steady with Nifty managing to stay above 18,000 zone for the last 2 days, despite weakness in global markets. US Fed’s 75 bps rate hike and weak Chinese economic data dented investor’s sentiments globally.”

He observed that Nifty opened lower but gained strength during the day to close with miniscule loss of 30 points at 18,053 levels. “PSU banks, paints, shipbuilding stocks were in momentum. Strong domestic cues along with positive FII flows for last few days are providing the much needed support to Indian equities,” Khemka said.

FPIs were net buyers of equities worth ₹677 crore in the cash segment on Thursday. In the past three trading sessions, the FPIs have net purchased stocks worth ₹4,723 crore.

Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities Ltd, noted that technically, in the backdrop of weak global cues, the Indian market opened with a negative note but after a gap down opening it bounced back sharply. However, after an early morning intraday rally, the market witnessed range-bound activity.

“The current market texture is non-directional, perhaps traders are waiting for either side breakout. For the bulls, 18,150/61,100 would be the fresh breakout level, above which the index could rally till 18,250-18,300/61,300-61,500. On the flip side, a fresh round of selling is possible only after dismissal of 17,950/60,500. Below which, the index could slip till 17,850-17,800/60,300-60,150,” Chouhan said.

G-Secs battered

G-Secs bore the brunt of the Fed hike, with yields rising and prices falling, tracking surge in US treasury yields. Yield of the benchmark 10-year G-Sec (coupon rate: 7.26 per cent) shot up about 9 bps to close at 7.4829 per cent (previous close: 7.3986 per cent). Price of this paper slumped about 58 paise to close at ₹98.455 (₹99.03).

Ajay Manglunia, MD and Head of Institutional Fixed Income, JM Financial, said: “It looks like the Fed will continue hikes till the terminal rate reaches around 4.75 per cent. Our 10-year G-sec today closed at a yield of 7.48 per cent. The yield has reversed from this level a couple of times.”

He assessed that after RBI hikes the repo rate, yield of this paper may go up to 7.65-7.70 per cent. But there will be reversal as subsequent rate hikes could be smaller. “The RBI may hike the repo rate by 25-35 bps in the next policy and then it may pause. From the inflation perspective, a rate hike is not needed in India, but to protect the currency, a rate hike is needed. That is the complusion,” Manglunia said.

Rupee action

The rupee ended 10 paise weaker, with the RBI selling dollars to prevent it from breaching the 82.90 level. The Indian unit closed at 82.88 per dollar against previous close of 82.78. The USD/INR was trading in a tight 82.87-82.90 for a major part of the day due to RBI’s intervention.

The rupee briefly touched an intraday low of 82.93 in afternoon trades. “The dollar is strengthening. With more Fed rate hikes in the offing, the rupee may depreciate towards the 84-85 level by December,” said a currency dealer with a private sector bank.

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