The negativity surrounding the equity markets across the globe over the last few weeks appeared to have paused. According to analysts, strong recovery in the the last three trading days is likely to continue this week despite the continuation of underneath factors like FPIs selling, fear of rate hike, economic slowdown and geopolitical tensions.

Analysts also pointed out the bounce back will continue for some more time unless a fresh uncertainty emerges. Domestic markets, too, started stabilising along with global trend.

Market discounts Fed moves

Equity markets focused on evolving growth-inflation dynamics, ongoing Q4 FY22 earnings prints and volatile global commodity prices. Markets continued to price in the probability of aggressive rate hikes by the US Fed, said Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities.

At 16,506, SGX Nifty indicates the bullish momentum to continue. As Nifty futures on Friday closed at 16,326, domestic markets are likely to see a gap up opening of 1.2-1.5 per cent. Most Asian stocks are up between 1 per cent and 2 per cent

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Analysts also welcome the government's recent move to contain the soaring inflation that will give some room for RBI.

Vinod Nair, Head of Research at Geojit Financial Services, said: "Although the measures by the government and RBI will help control inflation in the long-term, it will have a cascading effect on the market and economy in the short to medium-term."

Towards the end of last week, the market was able to recoup its losses following favourable retail earnings in the US and reduced FII selling.

“For this to sustain, the measure’s of the Fed and RBI in June will be an important factor. Market expects another 50bps hike by the Fed and 35bps by RBI. If the tone of future monetary policy is moderate than anticipated, it will have a positive effect in the short to medium-term, while a more hawkish stance will reduce the shelf life of the trend,” Nair added.

US dollar index softens

Analysts also advise investors to closely track the US Dollar index.

Ruchit Jain, Lead Research, 5paisa.com, said: "The global markets too seem to be on a pullback path on the charts which would be the key trigger for our market. Also, our market has recently shown a strong inverse correlation to the US Dollar Index which has corrected from 105 to below 102 now."

After touching a high level on May 13, the US Dollar Index has seen a correction and it coincides with the recent swing lows for our markets.

"Hence, short-term traders should keep a close tab on the US Dollar Index and in case we see a resumption of the uptrend in the same, then it would be initial signs to lighten up the longs again," he added.

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