As inflation fears rise once again following the strong rally in global commodity prices, equities across the world are on backfoot. Amidst the surcharged atmosphere, the domestic market is likely to continue its downtrend on Tuesday as well, as investors turn cautious ahead of the US Fed meet outcome.

Investors will look ahead to this week’s Federal Reserve conference meeting in Jackson Hole, Wyoming, for signals on further US rate hikes to cool surging inflation, according to Deepak Jasani, Head of Retail Research, HDFC Securities.

SGX Nifty at 17,410 indicates a knock-down of another 80 points at open for Nifty, as US stocks crashed over 2 per cent overnight. The Asian-Pacific stocks, too, tumbled between 0.5 per cent and 1.3 per cent in early deals on Tuesday.

F&O settlement this week (on Thursday) and selling by foreign institutional investors will add to volatility, said analysts.

‘Valuation not cheap’

According to experts, the Indian markets are not cheap at current levels and are still hovering above their long-term average.

Vinod Nair, Head of Research at Geojit Financial Services, said: "Consolidation was triggered in anticipation of a tighter monetary policy by the Fed and worries over a slowdown in global economic activity. The current risk reward does not favour investors as the Nifty50 is now trading at a premium valuation of 21.5x P/E (1yr fwd basis), above the long-term average. A rising dollar index and higher US 10-year bond yield act as the near-term headwinds for the market."

Technically weak

A note from domestic brokerage Choice International said, as Nifty closed below 17500, an important psychological level, the overall structure shows that the index is likely to witness a further sell-off in the coming days. A Fibonacci retrenchment has support at 17330, and would act as an important support for the next trading day: “The Nifty has slipped from the middle Bollinger band to the lower Bollinger band in the daily charts as well. Open interest data indicates, on the call side, the highest OI witnessed at 17600, followed by 17800 strike prices, while on the put side, the highest OI was at 17300, followed by 17000 strike price,” it said.

Prashanth Tapse - Research Analyst, Senior VP (Research), Mehta Equities Ltd, said: Negative global cues weighed on indices at Dalal Street, as the Nifty ended below the psychological 17500 mark and Sensex, too, fell way below its recently reclaimed psychological 60,000 mark. "Blame the negativity to last week's Fed meeting minutes, which pointed towards more aggressive rate hikes to curb inflation. If the last two days' trade is any indication, expect investors to stay on the sidelines in the coming session," he cautioned.

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