Markets Expect Fed Hike –

BSESENSEX lost 952.39 points or 1.59% to close at 58,840.79 points while NIFTY lost 302.50 points or 1.70% to close at 17,530.85 points. The broader markets saw BSE100, BSE200 and BSE500 lose 1.48%, 1.44% and 1.41% respectively. BSEMIDCAP lost 1.46% while BSESMALLCAP lost 1.12%. The benchmarks lost in three of the five sessions and gained in two of them.

The Indian rupee gained 6 paisa or 0.08% to close at Rs 79.74 per US dollar. lost 1,329.29 points or 4.13% to close at 30,822.42 points. It lost on three of five trading sessions and gained on two trading days.

In primary market news, shares of Tamilnad Mercantile Bank Limited were listed on the exchange in the trade-to-trade category on Thursday, September 15. Against an issue price of Rs 510, the shares closed on the day of listing at Rs 508.45, a loss of Rs 1.55 or 0.30%. On Friday, they lost significantly more at the close at Rs 493.75, down Rs 16.25 or 3.19%.

The issue of Harsha Engineers Limited, which had tapped the markets with its new issue of Rs 455 crore and a sell offer of Rs 300 crore, created the story of the subscription received. The record was for subscription under new rules where funding was capped at Rs 1 crore max per applicant and the HNI bucket split in half. The issue was subscribed 74.7 times in total. The QIB portion was subscribed 178.26 times, the HNI portion was subscribed 71.32 times, the Retail portion was subscribed 17.63 times and the Employee portion was subscribed 12.07 times. There were 26.40 lac applications.

Coming to markets last week with US markets first. On their Tuesday night (in the US), they fell 1,276 points due to higher than expected inflation. Further ahead at this point in the next FED meeting scheduled for September 20-21, the consensus for a rate hike is 75 basis points, with 74% of respondents believing the pedal can be pressed further and the same increase to 100 basis points. This triggered the sell-off and caused panic in global markets.

Move to India on Wednesday morning, where we opened a gap at 59,147.12 points on BSESENSEX and 17,771.15 on NIFTY. The open was the lowest and from there we recovered everything at some point before finally closing at 60,346.97 points and 18,003.75 points respectively. The net loss was only 245 points on BSESENSEX and 67 points on NIFTY. Here, people were talking about the decoupling effect. Anyway, that all seemed short-lived and, incidentally, Friday lows broke Wednesday’s low quite comfortably.

A few other events that have taken place that need to be mentioned include the fact that retail liquidity seen over the past two weeks has seen a pullback over the past two trading days. The strongly rising midcaps and small caps fell over the two days. Also, the money seemed to dry up or the purchases deferred. Second, investors wanted to wait for new investments until the results for the July-September quarter were announced later. To add to this is the fact that REITs have turned sellers for the past three consecutive days and for the first half of September invested a net Rs 1,956 crore. National institutions net sold Rs 3,000 crore for the month.

The week ahead will see the US Fed meet Tuesday-Wednesday for its rate hike meeting. Although a 75 basis point hike is given, even a 100 basis point hike may not be surprising. What would be carefully watched are the comments that follow and what they imply for the upsides of the two remaining meetings over the remainder of the calendar year. Additionally, on the last two occasions, US markets have behaved unexpectedly following the results of the FED meeting.

With FED uncertainty, expect markets to remain choppy and volatile. Last week’s highs of 60,676.12 points on BSESENSEX and 18,096.15 points on NIFTY will be key levels that will need to be broken higher and held for any rally higher. Failure to do so would put pressure on the indices in the short and medium term. Assuming the markets have the momentum to break and hold, we should see an upward move leading the markets past previous all-time highs in the near future.

On the other hand, we have support at 58,100-200 and at 17,300-350 points on NIFTY. The next level of support that could be considered the last hope for the bulls would be 57,575-650 on BSESENSEX and 17,125-175 on NIFTY. In the event that this is breached downwards, we may see the pace of the fall increase. The strategy would be to buy on a steep decline and sell on a strong rally. The markets will remain in a wide range and trade with volatility. Use it to make profit.

(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. Opinions expressed are personal)