Mr. Mitul Shah - Head of Research at Reliance Securities.
Domestic equities closed lower following weak global cues, due to the rate hike by U.S. FED and further rate hike expectations. The Nifty fell 0.5%, while broader markets out-performed the main indices as Nifty Mid Cap and Nifty Small Cap gained 0.4% and 0.6% respectively. Sectoral indices ended mixed. Nifty Media gained the most at 1.9% followed by Nifty FMCG, which was up 1.3%. Nifty Bank and Nifty Pvt Bank were the major laggards which plunged 1.4% each.
U.S. equities closed lower after the Federal Reserve raised interest rates by 75bps and signalled the need for further rate hikes in the months ahead. All three Indices fell in the range of 1.7%-1.8%. The yield on the benchmark 10-year Treasury note, settled lower at 3.511% from 3.571% on Tuesday. This is the fifth-consecutive increase to the federal funds rate which brings it to a range of 3% to 3.25%, the highest since 2008. The market expects the central bank to ultimately raise rates above 4% in order to tame inflation.
As expected, the FED increased interest rate by 75 bps and signalled that further rate hikes are possible in the coming months. After FED, the RBI may also take hawkish stance to fight against the inflationary pressure. The RBI is likely to increase the repo rate by 50 bps in the next week's MPC meeting. The sticky inflation and continued hawkish stance of central banks, warrants continued front loading of rate hikes. The inflation which is ranging above the upper tolerance band of RBI for the eighth straight and therefore it is expected inflation to remain sticky ~7.5% in FY23 driven by increases in food prices as per high frequency food price trend. The Indian economy faces headwinds from global forces such as geo-political tensions, rising financial market volatility, tightening financial conditions and recessionary concerns. The rise in repo rate coupled with the inflation is likely to impact the market in the near term. Going forward, the key events for the markets includes - I) Changes to growth and inflation forecast, II) Comments around comfort on external balance sheet and III) Tone of the policy statement and path on rate normalization.