Markets week ahead: US Fed meeting, and will Indian markets see a sell-off again?

In the upcoming trading sessions this week, investors will closely monitor the Federal Reserve’s monetary policy results and the inflow of foreign funds. Another aggressive rate hike is planned by the Fed, which has been affecting market sentiment for the past few days. Over the past week, Indian equities corrected sharply on weak global signals amid recession fears over concerns over a slowdown in the major economies. Important economic data also fueled sentiment. India’s CPI inflation surged while the wholesale price index eased slightly in August. However, factory production slowed in July. At home, the market will also assess RBI’s September policy while the FY23 Q3 quarterly season, set to start next month, could lead investors to bet on value stocks.

Last week on Friday, Sensex closed down 1,093.22 points or 1.82% at 58,840.79. Nifty 50 closed at 17,530.85, down 346.55 points, or 1.94%. The hardest hit were consumer discretionary, IT and auto stocks. Tech giants faced sharp sell-offs on global recession fears. The market capitalization of companies listed on the BSE fell by 6,18,536.3 million in a single day.

On September 16, the market capitalization of companies listed on the BSE is 2,79,68,822.06 million.

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Markets got off to a great start on the week of September 12-16 as Sensex broke above 60,600 and Nifty 50 broke above 18,000. However, in the last three trading sessions, the benchmarks erased gains on broad-based selling pressure. This week Sensex is down over 1,274 points and Nifty 50 is down over 405 points. Both benchmarks fell more than 2% each.

Meanwhile, the rupee closed at 79.78 against the US dollar on Friday on a strong greenback and shedding of shares in the domestic market. As of September 16, foreign investors (FIIs) continued to be net sellers of Indian equities. These investors withdrew 3,260.05 crore on the day. FII’s outflow was at 1,270.68 crore on September 15 and 1,397.51 million on September 14th.

Vinod Nair, Head of Research at Geojit Financial Services, said: “Despite its strong decoupling scenario and encouraging macroeconomic data, domestic bourses underperformed the global trend of rising bond yields and the dollar index on the back of rate hike fears in the global market. Fears of a recession in the global economy exacerbated selling pressures in IT and pharmaceutical stocks. Although the domestic CPI at 7% suggests a rising inflation trend on higher food prices, core inflation at 5.9% and softening WPI inflation numbers offered some consolation. A A 15.5% yoy increase in bank lending in August suggests the economy is recovering quickly.

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What to expect from the market in the coming week?

Apurva Sheth, Head of Market Perspectives, Samco Securities, advises traders to exercise caution. He said: “Compared to its previous peak of 17,992 on August 19, the Nifty 50 reached a higher peak of 18,091 on September 14. However, the 14-day RSI has made a lower high. This suggests momentum is fading. It appears that the Nifty could be facing strong headwinds now near its previous highs. The level of immediate support is around 17,000. Before making any big long bets in the markets now, traders should exercise caution.”

Hemant Kanawala, Senior Executive Vice President & Head of Equity at Kotak Mahindra Life Insurance Company, expects markets to consolidate in the near future.

He said: “As the upside from the re-rating is limited here, future performance and direction in the market will be driven by earnings lift and rollover. As investors await clarity on earnings growth and closely monitor the demand outlook, markets could consolidate further in the near term.”

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According to Sheth, next week’s FOMC meeting and press conference will be the focus. The interest rate decision by the Fed can trigger nervousness on the markets worldwide. Given the Fed’s dovish stance, some people are even expecting a 100 basis point rate hike. US markets already faced deep cuts as they reacted to the August 22 CPI and core inflation reads. Although India has significantly outperformed all other major markets, it is expected to remain volatile.

In Nair’s view, mid and small caps should continue to outperform in the short to medium term as they trade fairly well relative to large caps and are at a discount to their historical valuation trend. On the global front, the global market has priced in the likelihood of a more aggressive monetary policy response from the Fed at its upcoming meeting, following the release of US inflation data which showed a MoM rise in inflation.

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