Stock Market Analysis: Inflation figures, US Fed meeting among six key factors that could guide markets this week

Indian Equity Markets posted losses in the last five trading days, their first weekly loss in a month as rising crude oil prices and rising concerns over global monetary policy undermined risk appetite.

The past week has been volatile for the stock markets as reserve Bank of India Given the rise in domestic inflation, announced a 50-basis-point rate hike and clearly indicated even tighter fiscal conditions ahead.

Continued selling of domestic stocks by foreign portfolio investors also dragged down the headline index with BSE Sensex and Nifty 50 falling 2.6 per cent and 2.3 per cent respectively.

“Basically, foreigners have taken a view that Indian markets are relatively overvalued in the face of rising inflation and rising global interest rates and they are all day sellers,” said Deepak Jasani, Head of Retail Research at Securities.

“Also, the bullishness in the markets is not sustained. they are being sold by either FPI or local merchant. Hence, these two factors are effectively causing the market to fall. ,

NSDL data shows that FPIs have net sold shares worth Rs 13,888 crore in June so far.

The broader markets did not perform as poorly as the headline index, with BSE Midcap and little hat The index has lost 1.2 per cent and 2 per cent, respectively.

on the regional front, nifty The Bank index dropped 2.2 pents, while the IT index fell 2.6 per cent. Metals in the index declined 2.4 per cent while Nifty Realty declined 1.6 per cent. However, the Nifty Oil and Gas index edged up 0.4 per cent for the week due to a sharp rise in global crude oil prices.

Weakness in the rupee also hurt equities last week, raising concerns over FII outflows. The fall in rupee eats away the returns of FIIs from Indian stocks. On Friday, the domestic currency touched a new all-time low of 77.8750/$1.

Gaurang Somaiya, Despite volatility in forex and domestic and global equities and strength in dollar, it has been very resilient over the past few sessions and is consolidating in a narrow range. boolean analyzer,

Told.

Below are six key factors that could guide the markets next week:

US inflation data

US consumer inflation hit a 40-year high of 8.6 per cent in May, data released after Indian trading hours on Friday showed. With inflation rising in May exceeding market expectations, pressure mounts federal Reserve To keep up with aggressive rate hikes, despite risks to economic growth.

Responding to the data, the Dow Jones tumbled 880 points or 2.7 per cent in US stock markets on Friday. The S&P 500 fell 2.9 percent, while the tech-heavy Nasdaq lost 3.5 percent.

The carnage in US markets could spread to Asian markets and then to Indian stock markets on Monday.

Domestic CPI Inflation

The Central Statistics Office will release India’s Consumer Price Index based inflation data for May at 5:30 pm on Monday.

A Reuters poll estimates retail inflation to be at 7.10 percent in May. While the May print is seen lower than the 8-year high of 7.79 per cent, the price gauge is still seen well above the RBI’s mandated limit of 2.06 per cent.

As a result, the central bank continues to raise interest rates and tighten liquidity, increasing the cost of capital for firms.

The RBI last week raised the repo rate by 50 basis points to 4.90 per cent, taking the total number of rate hikes in the previous month to 90 basis points.

US Federal Reserve statement

The US Federal Reserve will issue its next monetary policy statement on June 15, following a two-day meeting of the Federal Open Market Committee.

The FOMC, which has raised its benchmark interest rate by a cumulative 75 basis points since March 2015, is expected to increase by 50 basis points each in June and July, given rising inflation in the US.

The rapid pace at which interest rates and bond yields are rising in the US raises the risk of more foreign outflows from Indian assets, as returns on financial assets become more attractive in the world’s largest economy.

crude oil

As has been the case for the past few months, the trajectory of global crude oil prices will be a major determinant of domestic stock price movements in the coming week.

Crude oil prices have resurfaced of late, following the EU’s decision to impose sanctions on a large portion of oil imports from Russia, as well as Saudi Arabia’s recent decision to increase prices by more than expected for Asian buyers. are gone.

On Friday, a barrel of Brent crude was trading around $122 a barrel, which is close to a three-month high.

The price of India’s crude oil basket hit a 10-year high on Friday, driven by disruptions in global supply chains following Russia’s invasion of Ukraine in late February.

Higher oil prices pose a significant upside risk to inflation and widen India’s trade deficit, given that the country imports more than 85 percent of its fuel needs.

Crude oil prices will be a major trigger for movement of markets as India heavily depends on its imports for energy needs, making it one of the top demands for petroleum products. Crude has been rising for the last six weeks.

FII outflow

The prospect of continued selling of FPI equities next week could weigh on the headline index. With the surprising rise in US inflation data, foreign investors may further hedge their exposure to Indian stocks in anticipation of aggressive rate hikes for Indian stocks. irrigated,

Higher interest rates in the world’s largest economy and consequently a stronger US dollar reduce the asset’s appeal in riskier emerging markets such as India. The rupee has depreciated by about 4.5 per cent against the greenback in 2022 so far due to a global strengthening of the dollar.

A weak rupee destroys the returns of FPIs from Indian assets.

So far in 2022, FPIs have sold Indian shares worth a massive Rs 1.81 lakh crore. Total sales since October 2021 have crossed Rs 2 lakh crore, which is Rs 2.2 lakh crore.

Technical Outlook

Yash Shah, Head of Equity Research, Samco Securities said Nifty posted losses last week in line with global markets, and the benchmark is moving towards a support zone between 15,900 and 16,100.

“Despite the fact that this week’s trading patterns suggest additional downside, the overall bearish momentum has reduced as Nifty is currently trading above the falling resistance line. As long as Nifty does not fall below 15,900, By then it is highly likely to reach the level of 16,800. We recommend that traders should take a neutral outlook for the coming week and avoid aggressive trading on both sides.