Both benchmark indices ended the week with losses. The Nifty50 lost around 3.83 percent, while the 30-stock Sensex fell 3.72 percent. The broader market also saw sales. Sectorally, metals and energy stocks were under heavy selling pressure.
Analysts said the release of higher-than-expected US CPI data suggests inflationary pressure will persist in the near term. India’s data was also higher than expected, which may further prompt caution.
However, some analysts believe that inflation is presumed to have peaked and will gradually decline in line with the ongoing decline in oil and other commodity prices and the slowdown in the economy.
“The Fed surprised the market with an aggressive stance, limiting liquidity, which limits future setbacks. We can expect stability in the market as the FII sale reduces factoring inflation and Fed policy,” said Vinod Nair, Head of Research,
“On the other hand, domestic institutional investors (DIIs) have lost confidence after enduring continuous losses. Given the current market volatility, investors prefer defensive sectors such as IT and pharmaceuticals, supported by the weakening INR. Looking ahead, the main driver of market direction would be the rate of decline in inflation in response to Fed action.”
Another negative factor hurting markets is the pressure on margins that companies have faced in the last quarter. Quarterly earnings have disappointed many on this front. However, analysts believe that this is a short-term trend and that the situation will probably improve in the second half of the fiscal year. However, the market will be attentive to companies that have not yet released their figures.
“As earnings season nears its climax, D-Street will sync up with the global news flow. India’s WPI data will be released next week and the highly anticipated IPO, LIC, will be listed on exchanges,” said Yesha Shah, director of equity research at Samco Securities.
Apart from these, no other major events are expected. In the absence of positive catalysts, indices are expected to remain under pressure as selling emerges on every bounce, analysts said.
“Therefore, investors are urged to stay on the sidelines as it is preferable to wait out the storm than to fish on the bottom during such turbulent phases,” Shah said.
The expected rate hike cycle remains a key issue for global equity markets, according to analysts. In addition, the incessant sale of FIIs in the domestic market added to the general downward trend. Therefore, for the indices to break out of the zone, it is important for the FIIs to buy.
“Nifty is struggling to cross 16,000 zones with sales emerging at higher levels. While markets are oversold, we expect both volatility and weakness to continue into the week ahead given weak global signals. FII’s continued selling of index heavyweights could limit the upside potential on any possible rebound,” said Siddhartha Khemka, Head of Retail Research,