Market signs point to further pain ahead for Indian assets: key highlights

Investors are grumpy as risks remain for Indian equities and the rupee

Indian stocks and the rupee face more trouble after a wide and deep fall since the war on the edge of Europe, as stagflation, which was seen as a consequence of the Russia-Ukraine crisis, is fast becoming the reference scenario.

Key highlights and factors to consider:

  1. Domestic equity benchmarks have taken a beating, following broader global stock markets, which have been battered since Russia attacked Ukraine in late February, lockdowns in China and fears over higher interest rates have caused a nervous jolt in the financial markets.

  2. Global trends, April wholesale price-based inflation data and ongoing quarterly corporate earnings would be the main drivers for stock markets. Indian stocks lost more than 2 percent in April and have closed in the red on most days so far in May. Sensex fell 2,041.96 points, or 3.72 percent, for the week ending May 13, on concerns about stagflation and flight-to-safety capital exodus.

  3. The selling of Indian shares by foreign investors continued as they pulled just over Rs 25.2 billion from the Indian stock market in the first half of this month, due to a global interest rate rise and concerns. about the increase in COVID cases.

  4. “Domestic, LIC’s IPO listing will be a key sentiment trigger for the Indian stock market. FIIs are relentlessly selling while DIIs are trying to offset their sales, therefore their behaviors are also will play an important role in the direction of the market. The movement of the dollar index, crude oil prices and the direction of the rupee will be other important factors,” Santosh Meena, head of research at Swastika Investment, told PTI.

  5. “Inflation concerns and monetary tightening around the world are key concerns for equity markets. Equity markets are under strong control of bears, however they appear extremely oversold and are expected to pull back. The sell-off in the US market, especially in tech stocks, was very severe, and there is some stability in the last two trading sessions that may provide some breathing room for bulls,” added Santosh Meena.

  6. The latest Indian data for April showed spiraling inflation and with international developments not too rosy, general investor sentiment points to further downside. Despite the RBI raising rates, expected interest rate spread dynamics and flight to safety trades point to a gloomy mood.

  7. “A series of aggressive rate hikes and communications came against a backdrop of plummeting Chinese and European activity, new plans for Russian energy bans and continued supply-side pressures,” Barclays analysts warned, reported Reuters. “This creates the bleak prospect of persistent inflation forcing central banks to hike rates despite a sharp slowdown in growth.”

  8. That has hit the Indian currency as international crude prices rose sharply and traded above $100 on average for a third month due to supply disruptions from the Russia-Ukraine war.

  9. The rupee hit new record lows repeatedly last week. In fact, the rupee on May 9, Monday, closed at a record low at the time of 77.44 against the dollar. It broke above 77.50 per dollar at different times to repeatedly break its lifetime intraday lows. On Thursday, the coin finished at a new all-time low of 77.50 after reaching a fresh intraday level of weakness at 77.63 against the US dollar.

  10. Fallout from Ukraine’s war on Indian assets was also reflected in India’s foreign exchange reserves falling for the ninth consecutive week to a more than one-year low of $595.954 billion, wiping out war fund accumulations. The country’s currency growth of a year in just two months as the RBI has been forced to intervene to prop up the rupee. That’s for a week before the rupee fell to record lows, suggesting further erosion.

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