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Fed rate hike worries drag markets lower for the week
Sep-16-2022

It turned out to be a disappointing week of trade for Indian equity benchmarks with frontline gauges shaving off over one and a half a percent as sentiments remain dampened on expectations that higher-than-expected August consumer inflation would prompt the US Federal Reserve to respond with a stronger interest rate hike the next time around. Markets started the week on an optimistic note as traders took support with data from Exim Bank showed that India's merchandise exports are expected to grow by 11.4 per cent to hit $114.4 billion during the July-September quarter of the current financial year. Some solace also came as the Finance Ministry said the provisional gross direct tax collections for FY23 till September 8 stood at Rs 6.48 trillion, which is 35.5 per cent higher than the same period last year. Markets further added some gains as sentiments got a boost with commerce and industry minister Piyush Goyal’s statement that Indian rupee has shown more resilience than most of the other currencies in recent years and the compounded average growth rate of depreciation is lower as compared to pre-2014. However, sentiments turned pessimistic from thereon amid selloff in global equities after the release of the US inflation number for August triggered risk-off bets. Traders remained cautious with OECD said India’s gross domestic product (GDP) in the June quarter contracted 1.4 per cent quarter-on-quarter, when adjusted for seasonality, and was the second worst performance among the G20 countries - the first being China. Manhole, India’s inflation based on wholesale price index (WPI) eased to 12.41% in the month of August 2022 as against 13.93% in July 2022. Markets extended losses as sentiments remain dampened after Fitch Ratings has cut its growth forecast for India to 7 percent for the current financial year (FY23) from the previous estimate of 7.8 percent. It also slashed GDP growth forecast for the next fiscal year (FY24) to 6.7 percent from the earlier estimate of 7.4 percent. Bloodbath on final day of the week mainly played spoilsports for Indian markets as a number of agencies have revised down their forecasts for India’s economic growth after June quarter GDP data showed Asia’s third largest economy had expanded at a slower-than-expected 13.1% from a year ago. Goldman Sachs trimmed its FY22 growth forecast for India to 7% from 7.6%. Morgan Stanley said there is a downside risk of 40 basis points to its growth estimate of 7.2% for FY23. Citigroup has slashed its FY23 growth projection to 6.7% from 8%.

BSE movement for the week

The Bombay Stock Exchange (BSE) Sensex slipped 952.35 points or 1.59% to 58,840.79 during the week ended September 16, 2022. The BSE Midcap index losses 379.01 points or 1.46% to 25,558.21, while Smallcap index slipped 329.35 points or 1.12% to 29,199.39. On the sectoral front, S&P BSE Power was up by 93.06 points or 1.80% to 5,250.66, S&P BSE BANKEX was up by 381.29 points or 0.82% to 46,670.26, S&P BSE PSU was up by 33.60 points or 0.36% to 9,310.99, S&P BSE Finance was up by 16.16 points or 0.19% to 8,603.19 and S&P BSE Metal was up by 29.45 points or 0.15% to 19,164.04 were the top gainers on the BSE sectoral front, while S&P BSE Information Technology was down by 1,968.25 points or 6.72% to 27,317.10, S&P BSE TECK was down by 777.51 points or 5.77% to 12,698.19, S&P BSE Realty was down by 121.07 points or 3.23% to 3,622.08, S&P BSE Oil & Gas was down by 586.81 points or 2.93% to 19,447.50 and S&P BSE Healthcare was down by 494.85 points or 2.14% to 22,664.28 were the top losers on the BSE sectoral front.

NSE movement for the week

The Nifty slipped 302.50 or 1.70% to 17,530.85. On the National Stock Exchange (NSE), Nifty IT was down by 2017.55 points or 7.02% to 26,706.45, Nifty Next 50 was down by 16.60 points or 0.04% to 44,093.35 and Nifty Mid Cap 100 was down by 541.00 points or 1.69% to 31,494.90. On the other side, Bank Nifty was up by 361.10 points or 0.89% to 40,776.80.

FII transactions during the week

Foreign Institutional Investors (FIIs) were net buyers in equity segment in the week, with gross purchases of Rs 40,136.85 crore and gross sales of Rs 33,646.05 crore, leading to a net inflow of Rs 6,490.80 crore. They also stood as net buyers in the debt segment with gross purchases of Rs 3,510.34 crore against gross sales of Rs 1,891.18 crore, resulting in a net inflow of Rs 1,619.16 crore. In hybrid segment, FIIs stood as net sellers, with gross purchases of Rs 26.01 crore and gross sales of Rs 52.14 crore, leading to a net outflow of Rs 26.13 crore.

Industry and Economy

Fitch Ratings has cut its growth forecast for India to 7 percent for the current financial year (FY23) from the previous estimate of 7.8 percent. It also slashed gross domestic product (GDP) growth forecast for the next fiscal year (FY24) to 6.7 percent from the earlier estimate of 7.4 percent. Its latest growth estimate for FY23 is lower than the Reserve Bank of India's (RBI) forecast of 7.2 percent. It stated ‘We expect the economy to slow given the global economic backdrop, elevated inflation and tighter monetary policy.’ Besides, since the central bank has said its future rate decisions would be calibrated, measured and nimble depending on economic dynamics, Fitch said it expects policy rates to peak in the near future and remain at 6 per cent all through next year.

Outlook for the coming week

In the passing week, key gauges ended in deep red, with Nifty and Sensex tumbling below their respective psychological levels of 17,600 and 58,900 respectively amid rising concerns over possible aggressive interest rate hikes to tame high inflation.

In economic releases, traders will be eyeing the Consumer price index for Agricultural Labourers/ Rural Labourers for the month of August, slated to be released on September 20. Market men will be eyeing the Foreign Exchange Reserves data to be announced on September 23. Foreign Exchange Reserves in India decreased to $553110 million in September 2 from $561050 million in the previous week.

Meanwhile, trend in investment by foreign institutional investors and the movement of rupee against the dollar will be also be closely watched by the market-participants.

On the global front, investors would be eyeing few economic data from world’s largest economy, United States (US), starting with Redbook on September 20, followed by Existing Home Sales, Fed Interest Rate Decision, FOMC Economic Projections on September 21, Fed Press Conference, Initial Jobless Claims on September 22 and finally S&P Global Services PMI Flash, S&P Global Manufacturing PMI Flash, Baker Hughes Oil Rig Count on September 23.

Top Gainers

  • Indusind Bank up by 10.74% was the top gainer on Nifty for the week - Autus Cyber Tech strategically partners with IndusInd Bank for digitizing two significant aspects of Haryana Rail Infrastructure Development Corporation (HRIDC) ERP - Human Resource Management and Finance Module. Proximo ERP by Autus Cyber Tech in partnership with IndusInd Bank presents one of the most flexible, customizable, scalable, and integrable ERP software for HRIDC. Meanwhile, the Bank has re-appointed Sumant Kathpalia as MD and CEO for a further period of three years.
  • Adani Ports and Special Economic Zone up by 6.01% was another top gainer on Nifty for the week - Adani Ports remained on buyer’s radar as its wholly owned subsidiary -- HDC Bulk Terminal has signed the Concession Agreement with Syama Prasad Mookerjee Port, Kolkata (SMPK) for mechanization of Berth no. 2 at Haldia Dock in Bengal. This is in continuation to the selection of APSEZ as a successful bidder by SMPK in February. As per agreement, the SPV formed to implement the project with a capacity of 3.74 million tons per annum for a concession period of 30 years at Haldia Dock. 

Top Losers

  • Infosys down by 6.70% was the top loser of the week on Nifty - Most of the IT stocks came under pressure amid concern that aggressive rate hikes by the US would plunge the US, the biggest market for Indian IT services firms, deeper into the risk of recession. The concerns around recession heightened as the August inflation print in the US showed that price rise continues to dog the US central bank. Meanwhile, Infosys to hold meeting of board of directors on October 12 & 13, 2022 to consider and approve the audited standalone and consolidated financial results for Q2FY23 and H1FY23.
  • HDFC Life Insurance down by 6.43% was another top loser of the week on Nifty - HDFC Life Insurance witnessed profit booking after recent gains. Abrdn (Mauritius Holdings) 2006 (abrdn) has sold 2.00% stake in HDFC Life Insurance Company. Abrdn has sold a total of 43,000,000 equity shares at Rs 574 per equity share. Pursuant to the above sale, Abrdn will hold 35,694,105 equity shares (1.66% shareholding) in the company. The sale is subject to the settlement process prescribed for the stock exchanges under the extant regulation and is expected to be completed on September 15, 2022.

Technical viewpoints

During the week, CNX Nifty touched the highest level of 18,096.15 on September 15 and lowest level of 17,497.25 on September 16. On the last trading day, the Nifty closed at 17,530.85 with weekly loss of 302.50 points or 1.70 percent. For the coming week, 17,320.02 followed by 17,109.18 are likely to be good support levels for the Nifty, while the index may face resistance at 17,918.92 and further at 18,306.98 levels.

US Market

The U.S. markets ended lower during the passing week after a hotter than expected inflation report solidifying the chances of aggressive rate hikes from the Federal Reserve. A highly anticipated report released by the Labor Department showed an unexpected uptick in U.S. consumer prices in the month of August. The Labor Department said its consumer price index inched up by 0.1 percent in August after coming in unchanged in July. Street had expected consumer prices to edge down by 0.1 percent. The modest increase in consumer prices came as higher prices for shelter, food and medical care offset another steep drop in gasoline prices. A 10.6 percent plunge in gasoline prices contributed to a 5.0 percent slump in energy prices, while food prices increased by 0.8 percent. The report showed prices for shelter and medical care also advanced by 0.7 percent and 0.8 percent, respectively.

Further, weakness also prevailed in the markets as the Federal Reserve released a report unexpectedly showing a modest decrease in U.S. industrial production in the month of August. The report said industrial production edged down by 0.2 percent in August after climbing by a downwardly revised 0.5 percent in July. Street had expected industrial production to inch up by 0.2 percent compared to the 0.6 percent increase originally reported for the previous month. The unexpected dip in industrial production largely reflected a continued weather-related slump in utilities output, which plunged by 2.3 percent in August after tumbling by 1.2 percent in July. The report also showed mining output was unchanged in August after jumping by 1.0 percent in July, while manufacturing output crept up by 0.1 percent in August after rising by 0.6 percent in July.

Meanwhile, Philadelphia-area manufacturing activity unexpectedly contracted in the month of September, according to a report released by the Federal Reserve Bank of Philadelphia. The Philly Fed said its current general activity index slumped to a negative 9.9 in September from a positive 6.2 in August, with a negative reading indicating a contraction in regional manufacturing activity. Street had expected the Philly Fed index to drop to a positive 2.8. Besides, a report released by the Commerce Department showed U.S. business inventories increased by less than expected in the month of July. The Commerce Department said business inventories rose by 0.6 percent in July after surging by 1.4 percent in June. Street had expected business inventories to climb by 0.8 percent. Retail inventories jumped by 1.2 percent, while wholesale inventories increased by 0.6 percent and manufacturing inventories crept up by 0.1 percent.

European Market

European markets ended the passing weak on pessimistic note amidst a negative sentiment worldwide driven by fears the Fed would be willing for a fierce combat against inflation. Concerns about slowing growth, tighter monetary policy and the energy crisis too weighed on investors’ sentiment. Investors also reacted negatively to report from the U.S. Labor Department showing hotter-than-expected consumer prices inflation in the world's largest economy. With the inflation data raising the possibility of another aggressive interest rate hike by the Federal Reserve at its monetary policy meeting next week, investors appeared quite reluctant to pick up stocks.

On the economic front, the euro area trade deficit widened in July to the highest level since the series began in 1999, rising to EUR 40.3 billion in the month from EUR 32.2 billion in June. Exports declined by adjusted 1.7% from June, while imports grew 1.5%. On an unadjusted basis, the trade balance showed a deficit of EUR 34.0 billion compared to a surplus of EUR 20.7 billion in the same period last year. Moreover, Eurozone industrial production declined more than expected in July. Industrial output dropped 2.3% from June, when production was up 1.1%. The pace of decline was deeper than street’s forecast of -1%. The monthly fall was largely driven by the 4.2% decrease in capital goods output and a 1.6% fall in durable consumer goods production. In addition, production of intermediate goods was down 0.8%. Partially offsetting these declines, non-durable consumer goods production climbed 1.2% and energy output grew 0.4%.

Germany's wholesale price inflation eased for the fourth month in a row in August but remained at an elevated level. Wholesale prices logged a double-digit annual growth of 18.9% after rising 19.5% in July. The pace of growth has slowed for the fourth consecutive month. On a monthly basis, wholesale prices edged up 0.1 percent, in contrast to July's 0.4 percent fall. Meanwhile, UK consumer price inflation slowed slightly in August from a 40-year high on a fall in fuel prices. Consumer price inflation unexpectedly slowed to 9.9% in August from 10.1% in July. The rate was forcast to rise slightly to 10.2%. On a monthly basis, the consumer price index rose 0.5%, slightly weaker than the 0.6% rise in July. Moreover, France’s consumer price inflation slowed to 5.9% in August from 6.1% a month earlier. But the rate was slightly above the 5.8% estimated on August 31.

Asian Market

Asian markets ended mostly in red during the passing week as investors are cautiously awaiting to US Fed's two-day policy meeting for cues about the course of monetary tightening in the United States. The US Fed is widely expected to deliver a third 75 basis-point rate hikes when it meets next week. Some concern also came as the rating agency Fitch cut its global economic growth forecast to 2.4% in 2022 and 1.7% in 2023 due to the European gas crisis, high inflation and a sharp acceleration in the pace of global monetary policy tightening. Adding to the pessimism, the World Bank said the world could be edging towards a global recession as central banks are aggressively increasing interest rates to combat surging inflation.

Chinese Shanghai Composite edged lower by around two percent after the country's central bank kept its key policy rate unchanged. Some concern also came after reports suggested that the United States is considering options for a sanctions package against China to deter it from invading Taiwan. Traders overlooked official data that showed China's industrial output rose 4.2% in August from a year earlier, better than the 3.8% growth in July, suggesting the economic recovery was able to sustain momentum. Meanwhile, China's new home rates wilted the most in 7 years in August, due to a mounting debt crisis and strict COVID curbs, dampening investor sentiments further.

Japanese Nikkei also fell by over a percent as larger-than-expected trade deficit of Japan in August with the surging imports amid high energy costs and a weaker yen, spurred fears on economic health of the country. Some concern also came after reports of the Bank of Japan apparently preparing for a currency intervention amid sharp declines in the yen. Traders also overlooked data showing Japan's business sentiment improving in the third quarter, while producer prices increased in August.
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