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Domestic stock markets are likely to open on firm note on Wednesday, as global markets have witnessed some kinds of stability after recent sell-off. SGX Nifty indicates the recovery is likely to continue today as well even as all eyes are on Reserve Bank's two-day monetary policy that commences today.
FPIs remain sellers
Analysts said that the undertone still remains bearish, as selling by foreign portfolio investors remains unabated. On Tuesday too they sold shares worth ₹1,967 crore. For February alone, they have offloaded shares worth about ₹10,000 crore. Unless, selling FPIs stops, domestic market is likely to remain volatile with downward bias, said market experts.
SGX Nifty at 17,303 indicates a positive opening for Nifty, as Nifty futures on Tuesday closed at 17,273. Asia-Pacific stocks are also in the green (up between 0.25 per cent and 0.8 per cent) in early deal on Wednesday. The US stocks gained by over one per cent overnight and US index futures maintained the momentum in early deal on Wednesday.
Rate hike on cards?
According to Prashanth Tapse, Vice President (Research), Mehta Equities Ltd, commanding attention would be the first Monetary Policy Committee meeting after the Union Budget that will conclude on Thursday.
"We suspect, no change in key policy rates but given the expected widening fiscal deficit at 6.9 per cent for FY22, it will be a tough task for the RBI to maintain liquidity and inflation while supporting growth. Technically speaking, Dalal Street could win only if Nifty is able to move above its key hurdle now at 17535 mark," he added.
According to Emkay Global The MPC policy is a close call as RBI needs to balance policy conundrums amid surging term premia. "While a mild 15-25bps hike in fixed reverse repo (RR) may not be too disruptive at this stage, markets will still have to be assuaged over material tightening of financial conditions," it said in a note.
WIth results almost coming to an end, analysts are weighing other factors that will decide on market direction.
‘Long-term buying opportunity’
Mitul Shah, Head Of Research at Reliance Securities, said: the earnings season has gathered pace with revenue is largely in-line with estimates, however higher commodity prices taking toll on margin and profitability to some extent.
"In the past we have observed that volatility in market persists till the announcement of first rate hike by Fed, post which it settles down and flow in equities resume. Equities would continue to outperform with double-digit returns. Our year-end 2022 target for Nifty is 20,000 at 22x FY24E earnings," he said.
"We expect Nifty to enjoy premium valuation for the next 1-2 years on the back of higher earnings CAGR (before reaching stable earnings pace of growth), as India becomes a preferred destination for global manufacturing, going ahead. This trend would continue over the next 4-5 years, supported by China+1 policy and the government’s support for various industries," he further said.
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