Upcoming Market Week: RBI MPC Earnings, F&O Flow, Global Indications of Market Trend
After falling 1.7% on Friday, the benchmark Nifty has turned negative for 2022 – leaving investors with a difficult choice of either buying stocks at a discount or staying on the sidelines and watching the global turmoil wait for the markets.
Last week, the US Federal Reserve raised interest rates by 75 basis points, causing the dollar index to surge against a range of other currencies and stocks from Wall Street to Dalal Street.
On Friday, the Dow Jones Industrial Average was down over 20% from its Jan. 5 intraday record high amid fears that aggressive monetary tightening by the Fed could push the economy into recession. As markets opened in India that day, foreign institutional investors (FIIs) sold shares worth Rs 2,900 crore, taking the FII sell-off to Rs 5,000 crore in just two days. This contributed to the decline in the Indian rupee, which was already feeling the pressure of the dollar index’s unabated rise, with the tender versus the greenback slipping to an all-time intraday low of 81.26. After a volatile session, the rupee settled at 80.99 per dollar from Thursday’s level of 80.87, but only after the Reserve Bank of India (RBI) intervened to help the local currency recover from some losses to balance against the dollar. The central bank has sold dollars from India’s rapidly depleting foreign exchange reserves to protect the local currency from severe global turmoil. As of September 16, India’s foreign exchange reserves had fallen to $545.65 billion – the lowest since October 2, 2020 – from $631.53 billion on February 25 when Russia attacked Ukraine.
Next week is expected to be just as volatile, if not more so, as two key events would keep domestic investors on their toes: Thursday’s monthly F&O wrap-up and Friday’s RBI Monetary Policy Committee decision.
Most analysts expect the RBI to hike interest rates another 50 basis points on Sept. 30 to further lower retail prices and bring consumer price index (CPI)-based inflation to 6%. Since May, the Indian central bank has hiked repo rates by 140 basis points; a 50 basis point hike would take rates to a three-year high of 5.9%.
“Globally, inflation, central bank interest rate hikes, energy prices and recession are causes for concern. Crude oil prices have remained broadly stable, but the Indian currency has depreciated over the past few days. For the domestic market, one of the most important near-term events is the upcoming RBI monetary policy,” said Shrikant Chouhan, head of equity research (retail) at Kotak Securities.
Global cues, FII action and rupee volatility will also decide market direction next week, experts say.