Post Market views - June 20, 2022 - Reliance Securities

Mr Mitul Shah, Head Of Research at Reliance Securities.

The domestic equities ended slightly higher despite a gap-down opening amid global concerns of rising inflationary pressures. Nifty increased 0.4% while broader markets underperformed compared to the main indices as Nifty Mid Cap and Nifty Small Cap fell 1.8% and 3.2% respectively. Sectoral indices ended mixed with Nifty Metal and Nifty Media being the major laggards which declined 3.9% and 2.6% respectively, while Nifty FMCG and Nifty Fin Service were among the gainers which rose 1.8% and 1% respectively. Meanwhile, geopolitical turmoil between Russia and Ukraine continues to negatively impact market sentiments.

U.S. equities closed sharply lower with S&P 500 fell 5.8% for the week, its largest decline since the Covid pandemic in Mar'20. The Dow Jones fell 4.8% for the week, marking its biggest drop since Oct'20, while Nasdaq plummeted 4.8%. The FED raised interest rates by 75bps earlier in the week which muddled the already volatile markets even further. In bond markets, the yield on the benchmark 10-year Treasury ended the week at 3.238% after hitting an 11-year high of 3.498% during the week. The Prospects for repeated interest rate hikes throughout the rest of the year have led investors to believe that further monetary policy tightening could reduce growth. U.S. mortgage rates recently reached their highest level in more than 13 years. Recent economic data have shown sharp declines in key sectors. Major central banks followed the US Federal Reserve in raising interest rates. The Bank of England and Swiss National Bank raised policy rates after the US Fed. For the Swiss, this is the first policy interest rate hike in 15 years. More central banks are expected to withdraw COVID liquidity measures and tighten monetary policies.

Inflation is a major threat to the world economy and central banks around the world are attempting to bring it under control. Interest rate hikes, growing concerns about corporate profits and economic growth continue to throttle investor sentiments amid global issues of Russia-Ukraine war and rising COVID cases. Earlier, the World Bank revised India's growth forecasts for FY23 to 7.5%, marking a 1.2% cut from its previous forecast of 8.7%. However, RBI reiterated that, India is in a better position in comparison to many competing economies and is likely to avoid stagflation owing to its resilience in face of multiple shocks and strong macro fundamentals. After RBI's 50bps interest rate hike, the U.S FED also increased rates 75bps. Furthermore, the European Central Bank confirmed its intention to hike interest rates by 25bps at its July meeting, with a further hike expected in September, the scale of which will be determined by the medium-term inflation outlook. The markets are likely to remain volatile as the rate hikes and inflationary pressure continued to be a major drag for global and Indian equities.