stock market analysis: Inflation data, US Fed meeting among six key factors that may guide markets this week

Indian equity markets registered losses within the final 5 buying and selling days, logging their first weekly losses in a month as elevated crude oil costs and mounting issues over international financial coverage tightening eroded threat urge for food.

The week passed by was a unstable one for inventory markets because the Reserve Bank of India introduced a 50-basis-point fee hike and clearly hinted at even tighter monetary situations going forward, given elevated home inflation.

Relentless gross sales of home shares by international portfolio traders additionally dragged the headline indexes decrease, with the BSE Sensex and the Nifty50 racking up losses of two.6 per cent and a pair of.3 per cent, respectively.

“Principally, the foreigners have taken a view that Indian markets proceed to be comparatively overvalued within the face of rising inflation and rising international rates of interest and they’re sellers on all days,” Deepak Jasani, Head of Analysis – Retail, at Securities mentioned.

“Plus, the rises within the markets should not sustained. They’re being offered into both by the FPIs or the native merchants. So, these two causes are successfully resulting in markets slipping.”

FPIs have internet offered Rs 13,888 crore price of shares thus far in June, NSDL knowledge confirmed.

Broader markets didn’t fare fairly as badly because the headline indexes, with the BSE Midcap and Smallcap indexes shedding 1.2 per cent and a pair of per cent, respectively.

On the sectoral entrance, the Nifty Financial institution index dropped 2.2 pent, whereas the IT index slumped 2.6 per cent. Metals misplaced 2.4 per cent on the index whereas Nifty Realty shed 1.6 per cent. The Nifty Oil and Fuel index, nevertheless, notched up beneficial properties of 0.4 per cent for the week, possible buoyed by a pointy rise in international crude oil costs.

Weak point within the rupee additionally harm equities final week, amplifying issues over FII outflows. A depreciating rupee eats into FIIs’ returns from Indian shares. On Friday, the home foreign money touched a recent all-time intraday low of 77.8750/$1.

“Rupee hit a recent all-time low however in the previous few classes it has been very resilient and is consolidating in a slender vary regardless of volatility in home and international equities and energy within the greenback towards its main crosses,” Gaurang Somaiya, Foreign exchange & Bullion Analyst,

mentioned.

Beneath are six key components that will information markets subsequent week:

US inflation knowledge

Information launched after Indian buying and selling hours on Friday confirmed that US client inflation rose to a recent forty-year excessive of 8.6 per cent in Might. With the rise in inflation in Might outstripping market expectations, the stress is constructing on the Federal Reserve to stick with aggressive fee hikes, dangers to financial progress however.

Reacting to the info, US inventory markets slumped on Friday, with the Dow Jones plunging 880 factors or 2.7 per cent. The S&P 500 fell 2.9 per cent, whereas the tech-heavy Nasdaq crumbled 3.5 per cent.

The carnage in US markets is prone to spill over into Asian markets after which Indian equities on Monday.

Home CPI inflation

The Central Statistics Workplace will launch India’s Shopper Value Index-based inflation knowledge for Might at 5:30 pm IST on Monday.

A Reuters ballot estimates headline retail inflation at 7.10 per cent in Might. Whereas the Might print is seen decrease than the 8-year excessive April studying of seven.79 per cent, the worth gauge continues to be seen effectively above the RBI’s mandated vary of two.06 per cent.

Consequently, the central financial institution is seen persevering with to lift rates of interest and tighten liquidity, resulting in an increase in price of capital for companies.

The RBI hiked the repo fee by 50 foundation factors to 4.90 per cent final week, taking the overall tally of fee will increase within the final month to 90 foundation factors.

US Federal Reserve assertion

The US Federal Reserve will launch its subsequent financial coverage assertion on June 15, following a two-day assembly of the Federal Open Market Committee.

The FOMC, which has already raised its benchmark rate of interest by a cumulative 75 foundation factors since March 2015, is predicted to lift charges by 50 foundation factors every in June and July, given hovering inflation within the US.

The fast tempo at which rates of interest and bond yields are climbing within the US will increase the danger of extra abroad outflows from Indian belongings, as returns on monetary belongings on the planet’s largest economic system develop into extra engaging.

Crude oil

As has been the case for the previous few months, the trajectory of worldwide crude oil costs will probably be a key determinant of home inventory worth actions within the week forward.

Crude oil costs have hardened once more of late following the European Union’s resolution to ban a serious chunk of oil imports from Russia in addition to Saudi Arabia’s current resolution to lift costs for Asian patrons by a greater-than-expected quantum.

A barrel of Brent crude was buying and selling round $122 per barrel on Friday, near a three-month excessive.

On Friday, the worth of India’s crude oil basket jumped to a 10-year excessive, pushed by the disruptions in international provide chains following Russia’s invasion of Ukraine in late February.

Excessive oil costs pose a major upside threat to inflation and push up India’s commerce deficit, on condition that the nation imports greater than 85 per cent of gasoline wants.

Crude oil costs could be a key set off for the motion of markets as India closely relies upon upon its imports for the vitality wants, making it among the many high demanders for the petroleum merchandise. Crude has been rising for six weeks now.

FII outflows

A possible continuation of FPI fairness gross sales subsequent week could weigh on headline indexes. With the US inflation knowledge shocking on the upside, abroad traders could additional pare down publicity to Indian shares in anticipation of aggressive fee hikes by the Fed.

Larger rates of interest on the planet’s largest economic system and a consequently stronger US greenback diminish the attraction of belongings in riskier rising markets equivalent to India. The worldwide energy of the greenback has led to the rupee weakening round 4.5 per cent towards the dollar thus far in 2022.

A weaker rupee erodes FPIs’ returns from Indian belongings.

To date in 2022, FPIs have internet offered a large Rs 1.81 lakh crore price of Indian shares. The entire tally of gross sales since October 2021 has crossed the Rs 2 lakh crore mark, standing at Rs 2.2 lakh crore.

Technical Outlook

The Nifty registered losses final week in step with international markets, and the benchmark seems to be transferring in the direction of a assist zone between 15,900 and 16,100, Yesha Shah, Head of Fairness Analysis, Samco Securities mentioned.

“Even supposing this week’s buying and selling patterns recommend extra draw back, the general bearish momentum has moderated as Nifty is at the moment buying and selling above the falling resistance line. So long as Nifty doesn’t fall under 15,900, there’s a important likelihood that it could possibly check 16,800 ranges. We suggest merchants hold a impartial view for the approaching week and keep away from aggressive trades on both aspect.”