Rising rates and downward pressure to weigh on the markets

By Arun Kejriwal

Bombay, June 12 (IANS): Markets were under pressure on expected lines and lost four of five trading sessions. Thursday was the only exception for the week when markets rallied quite sharply and led by action. BSESENSEX lost 1,465.79 points or 2.63% to close at 54,303.44 points, while NIFTY lost 382.50 points or 2.31% to close at 16,201.80 points. The broader markets saw BSE100, BSE200 and BSE500 lose 2.17%, 2.07% and 2.06% respectively. BSEMIDCAP lost 1.25%, while BSESMALLCAP lost 2.00%.

The Indian rupee was under pressure and lost 21 paisa or 0.27% to close at Rs 77.83 to the US dollar. Dow Jones had a torrid week losing 1,506.91 points or 4.58% to close at 31,392.79 points. Inflation in the United States is at its highest level since the 1980s and people are starting to worry. Some major brokerages issued warning signals that the Fed’s hike on Wednesday could reach 75 basis points. In any case, in an economy that has been under a near-zero interest regime for so many years, to see such increases would be unprecedented and unimaginable. No one can guess how the markets would react.

Reliance Industries reversed the trend on the only day markets gained on Thursday. The share gained from the daily low of Rs 2,709 to close at Rs 2,799, slightly below the daily high of Rs 2,802. The day’s gain was Rs 84 or 3.09%. Thursday was a weekly expiry and saw huge volatility and short sellers sent to cleaners. It is another story that Reliance ended the week at Rs 2,714 down Rs 66 or 2.37% for the week.

RBI raised rates at its monetary policy meeting which ended on Wednesday. RBI raised repo rates by 50 basis points to 4.90%. This is the second increase in the current fiscal year 2022-23. Previously, it had raised rates by 40 basis points in an off-cycle encounter. RBI estimates that inflation would remain high for another two quarters and then fall below the tolerance level. He expects CPI inflation to hold steady at 7.5% in the first quarter, 7.4% in the second quarter, 6.2% in the third quarter and 5.8% in the fourth. trimester. RBI estimates that inflation would gradually slow down and expects inflation of 6.7% for the year 2022-23. Analysts think that if inflation is controlled at the indicated levels, it would be a good thing.

The immediate impact of the rate hike was felt in the housing sector, as home loans saw an increase in interest rates. It would take some time for clarity to emerge from the behavior of the housing or real estate sector.

Global markets await action from the FED at its Wednesday meeting where rates are bound to be raised. How much is still debated. Indian markets would react to the news on Thursday when they open for trading.

Over the past two quarters, market intermediaries in India have been talking about the continued selling off of FII and how it is dampening market sentiment. While there’s no one way to look at it, the fact that domestic mutual fund-led institutions have consistently matched FII sales by continually buying doesn’t help matters. They (FII) get a comfortable exit without wasting any sleep or money. They are dating quite comfortably, making money on their sales and waiting for better days to buy. FIIs are selling out in all comparable markets like India, simply because the free money is no longer available. There is a cost to money and it increases quite quickly.

I believe that if national institutions allow IFIs to sell without absorbing them, they would stop at a particular level because they would destroy their own exit plan. It’s a way of seeing things and also a way of presenting things. Domestic inflows through SIPs and normal schemes are understood to be quite strong and often compel mutual funds to invest.

Another week has passed without any primary market activity and nothing is expected to happen in the coming week either. Current market conditions and the fact that this new creeping system of apps after being bid, not banked, is hurting the system. Bankers have just over two and a half months until September 1, 2022 to get the system back in order.

Looking to the week ahead, it looks like the 16,400-16,450 levels on NIFTY and the 55,000-55,200 levels on BSESENSEX have been broken and perhaps decisively this time around. The fall in the United States on Friday and the concerns emerging after the inflation figures and the rate hike expected on Wednesday will not allow the markets to breathe easily. In such a scenario, even if the markets do not fall, they will drift at best. Either way, with each passing day and the lower levels touched, the resistances at the higher levels would become stronger. The closest level of support for the markets continues to be around 53,450 and 15,900 levels on the BSESENSEX and NIFTY respectively. Below we have levels at 52,700 and 15,700. It should be remembered that markets tend to temporarily reverse direction before breaking major supports or resistances. On the upside as strong resistance sits at 55,200 and 16,400. Beyond that looks challenging right now.

The flow of information is the other means by which the markets can revive. Currently, no news expectation exists. The Russian-Ukrainian war is over 100 days old and each passing day adds to the count, not a resolution. Earnings season for the April-June quarter is almost a month away. Inflation takes its toll and the ability of manufacturers to pass on price increases disappears and becomes much more difficult.

The trading strategy would be to sell on the rallies and wait to come back. Opportunities to re-enter would be available in abundance. Trade cautiously and use high swings to enter markets in a selected group of stocks.