Post Market views - Sep 14, 2022 - Reliance Securities

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

Indian equities pared losses but closed lower, tracking weak global markets, post the release of U.S inflation data. Nifty declined 0.4% while Nifty Mid Cap and Small Cap fell by 0.4% and 0.1% respectively. Sectoral indices ended mixed. Nifty PSU Bank gained the most at 1.7% followed by Nifty Metal which was up 1.6%. Nifty IT was the major laggard which plunged 3.4%, followed by Nifty Oil & Gas which dipped 0.9%. Meanwhile, the RBI is expected to continue its hawkish stance and likely to raise interest rates by 50bps in its upcoming policy meet. Spill-overs from geopolitical shocks are causing considerable uncertainty to the inflation trajectory. India's retail inflation CPI surged to 7% in Aug'22 due to higher food prices, as against 6.71% in Jul22. The CPI has remained above the RBI's comfort zone of 2-6% for the eighth consecutive month. Food inflation, which accounts for ~50% of CPI basket, soared 7.62% in Aug'22 as against 6.75% in July. India's inflation is likely to remain at elevated level in the near term due to higher energy prices (Oil and gas prices) and food prices, we expect it to cool down towards the end of FY23.

U.S. equities closed lower and suffered their worst day in more than two years after the release of higher-than-expected inflation data. The Dow Jones fell 3.9%, the S&P 500 declined 4.3%, while the Nasdaq Composite slid 5.2%. All three indexes posted their steepest one-day losses since June 11, 2020. The yield on the benchmark 10-year U.S. Treasury note jumped to 3.422% from 3.361% on Monday. U.S CPI rose 8.3% YoY in Aug'22, down from 8.5% in Jul'22 and 9.1% in Jun'22 which was the highest inflation rate in four decades. While inflation eased, the number was higher than expectation of 8%. The Fed is likely to raise rates by at least 75bps next week.

The US Federal Reserve reiterated the need to act strongly against inflation, leading markets to expect more interest rate hikes in the near future. India is trading premium valuations compared to emerging market on high growth expectations. We expect the outperformance to continue given FII investment coupled with strong macros for India compared with other markets. India's GDP data for Q1FY23 came in at 13.5%, and GDP growth is expected to sustain at 7% in FY23, which is the highest among emerging markets. We expect strong economic rebound, normalised commodity prices, inflation within targeted range and better visibility in the near term.

Source : Equity Bulls

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