Domestic markets are expected to open on a flat note but in positive territory on Tuesday. SGX Nifty at 17,090 (8am) signals that the psychological 17000-mark for Nifty will be protected, at least, in early part of trading on Tuesday.
Bulls vs Bears
However, with foreign portfolio investors resorting to aggressive selling, market may find difficult to reverse direction. "The tug-of-war between bulls and bears will keep market volatile ahead of RBI monetary policy meet and F&O expiry," said an analyst with domestic brokerage.
Panic gripped Dalal Street as the risk of recession was on the front and centre in financial markets across the globe. The street suspects that the Fed moving so aggressively on rate hikes could cause a recession, said Prashanth Tapse - Research Analyst, Senior VP (Research), Mehta Equities Ltd.
The other biggest headwind which stock markets world over facing is inflation. In this backdrop, investors await the RBI MPC’s move on rate-hike decision this Friday, which would determine the trend in the medium term.
‘IT stocks to see volatility’
Sandeep Bhardwaj, CEO, IIFL Securities, said: "A slowdown/recession would have an impact on our country’s exports as demand for goods and services would begin to dry up. Hence, for the medium term, we should expect higher volatility in IT stocks. Currently Nifty trades at 1.2 stdev above 15-yr avg, both for PE and PB, but India’s emerging rarity value means that Nifty can eke out modest returns."
“Besides, the battered US stocks may see some support at lower levels, said analysts. With crude oil prices falling drastically in the last few days, analysts expect domestic market to see some stability at current levels,” it added.
Eyes on RBI’s stance
According to analysts, though market has already discounted a 50-basis point hike by RBI in the ensuing meeting, the focus will be on its tone, it added.
Raghvendra Nath, Managing Director – Ladderup Wealth Management Private Limited, said: “The upcoming RBI MPC meet is expected to offer significant cues to the financial ecosystem in India. In keeping with the 75-bps rate hike by the US Federal Reserve earlier this month, and the rising inflation, which is expected to be around 7 per cent for September as well, we are preparing for a rate hike by the MPC."
The dollar’s continued strength, as well as the geopolitical concerns in Europe, will weigh on the MPC while they make this decision, and it is likely that the market will have to contend with a 50-bps hike, he added.
Pankaj Pathak, Fund Manager-Fixed Income, Quantum AMC, said: From market perspective, RBI’s guidance on liquidity management will be more important in this meeting. As the liquidity condition is turning into deficit, market is expecting OMO purchases to add liquidity and to support the bond market in the second half.
"Given the tightening policy direction, the RBI may disappoint the market on OMOs," he cautioned.