Weekly Report - August 27, 2022 - Reliance Securities

Mr. Mitul Shah - Head of Research at Reliance securities.

U.S. equities closed lower after Federal Reserve vowed to keep high interest rate to fight inflation at cost of economic growth. On Friday, Dow Jones shed 3%, witnessing the biggest one-day drop since May. The S&P 500 fell 3.4% while Nasdaq slid 3.9%. For the week the all three indices ended more than 4% lower. The 10-year yield inched up to 3.034% from Thursday's 3.023%. Comments from FED chair disappointed and would shift from raising rates to lowering sometime next year. Friday's selloff capped off two consecutive weeks of losses for major stock indexes and largely wiped out the market's gains since late July. Meanwhile, oil prices climbed as investors balanced expectations of weaker demand with signs that the OPEC+ oil-producers group was considering cutting production at its next meeting. Front-month futures on benchmark Brent crude oil rose 1.7% to settle at $100.99 a barrel.

Indian equities closed lower for the week amid hawkish stance from the central banks due to the unstable macroeconomic environment. For the week, the Nifty declined 1.1%, while Mid Cap and Small Cap rose 0.6% and 1.5% respectively. Sectoral indices ended mixed for the week Nifty PSU Bank gained the most at 4.4% followed by Nifty PSE which was up 1.95%. Nifty IT was the major laggard for the week which plummeted 4.5% followed by Nifty Service Sector which was down 1.5%.

The Federal Reserve continue raising interest rates and hold them at a higher level until it is confident inflation is under control and at the 2% level. Slackness in the rate of investment, spending and hiring will be the unfortunate costs of reducing inflation. The RBI has made it clear to achieve its medium term inflation target of 4% over the next two years. The focus on the next few weeks would be on how central banks prepare to combat in the near term.The RBI's rate setting panel is likely to opt for slowing down the pace of hikes and increase the repo rate by 25 bps in September. The central bank has already hiked the repo rate by 1.4% in three consecutive actions since May this year, in response to the high inflation which has been consistently breaching upper end of the tolerance band set by the government to the RBI. The Monsoon in India till 26th August, is ~8% above long-term average. The fourth advance estimate of production of major agricultural crops production of wheat during FY22 is estimated at 106.84mn Tonnes. The reserves have declined in August to the lowest level for the month in 14 years, while consumer wheat inflation is running at close to 12%. India's retail inflation may be moderating after hitting a peak in April but there are some upside risks that will weigh on the RBI's as it decides the course of future rate hikes. We expect some profit booking next week after 15-20% gain seen in last two months.

Source : Equity Bulls

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