Brace another weak day, as bears to stage a strong come back in vengence on Thursday. Domestic equities along with Asia-Pacific markets are once again on shaky ground, following a heavy sell-off in the US stocks.
The US Federal Chief Jerome Powell's hawkish stance once again played spoilsport for global stock markets that witnessed fragile recovery in the last few days. Chair Jerome Powell on Tuesday underscored the Federal Reserve's determination to keep raising interest rates until there is clear evidence inflation is steadily falling. Powell did not mince words in stating the Fed would agree with taking the rate of interest to 4 per cent instead of 3 per cent over the next 12-18 months.
RBI’s hawkish minutes
Analysts also expect Indian central bankers to hike interest rate quicky and sharply.
The minutes of the out-of-turn May MPC that saw a repo rate hike of 40bps reflected increased policy urgency and catch-up with heightened inflation uncertainties. "The persistent inflation narrative saw coherence among members, with most believing, irrespective of the source of inflation (supply or demand side), that the current high levels require a policy tilt and taming of inflation expectations," said Emkay Global adding that Even though the economic outlook is being impacted by huge global crosscurrents and shifts - the net impact of which is still hard to gauge - the RBI's rhetoric has firmly moved in a hawkish direction."
Weak SGX Nifty
SGX Nifty at 15,919 indicates that Nifty is likely to lose the hard-earned 16,000-mark once again. Nifty futures on Wednesday closed at Equities across Asia-Pacific region slumped between 1.5 and 3.5 per cent. The worst market among them is Hong Kong, where Hang Seng index slumped 3.35 per cent while Korea's Kospi and Australian markets are relatively better by falling about 1.5 per cent.
Overnight, the US stocks crashed over 4 per cent. While tech-heavy Nasdaq crashed 4.73 per cent, S&P 500 tumbled 4.03 per cent and the Dow Jones Industrial Average slumped 3.57 per cent. Besides, rate-hike fears, companies also face inflationary pressures due to rising raw materials price that took a heavy toll on US stocks.
FPIs selling to slow down?
Prashanth Tapse, Vice President (Research), Mehta Equities Ltd, said, “The tussle between bulls and bears is likely to intensify amidst optimism about a global recovery in the backdrop of easing Covid-19 related restrictions in China as against stagflation fears.”
However, analysts see a slowdown in FPIs selling going forward. FII’s have started covering shorts in Index future segment which augurs well for the markets going forward, said Nandish Shah - Deputy Vice President Retail Research, HDFC Securities.
Markets struggled to maintain its positive momentum as increase in volatility and absence of follow-up-buying at higher levels led the benchmark to close in negative territory. “We expect market to consolidate for some more session until FIIs selling reduces and India VIX cools down below 20 levels.,” said Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services Ltd.