Federal Reserve meet to guide market this week

NEW DELHI:  The global equity market, including India, will be eagerly watching the US Federal Reserve meet that will take place on September 20-21 for future directions. As the world’s biggest economy, the US, reported a higher than expected inflation data for the month of August, it sent shivers all across the globe of a possible recession scenario. 

The Federal Reserve is now expected to go for a very steep rate hike to tame the rising inflation. This, according to market experts, will tighten liquidity in the equity market, and is a big negative for emerging markets such as India where foreign investor participation is very prominent. 

“The FOMC meeting and press conference will be the center of attention this week. Globally, Fed’s interest rate decision can trigger jitters in the markets. Given the US Fed’s hawkish stance, some people are expecting even a 100 bps rate hike. US markets already faced deep cuts when they reacted to the figures of headline CPI (that came at 8.3%) and core inflation for August’22. Although India has done significantly better than all the other major markets, it is expected to remain volatile,” said Apurva Sheth, Head of Market Perspectives, Samco Securities.

Indian benchmarks, Nifty and Sensex, fell nearly 2% on Friday due to a sharp fall in technology and automobile stocks following a broader global selloff over recession worries. Both the indexes posted a weekly loss of over 1.5% and closed Friday session 58,840.79 (Sensex) and 17,530.85 (Nifty)
Vinod Nair, Head of Research at Geojit Financial services, said that despite its strong decoupling scenario and encouraging macroeconomic data, domestic bourses succumbed to the global trend of rising bond yields and the dollar index as a result of rate hike fears in the global market.  

According to Santosh Meena, Head of Research, Swastika Investmart, Indian market is showing resilience despite weak global cues but it can’t remain isolated for long. “The global markets are looking nervous after US inflation numbers, which have caused the dollar index to hover around 110. US 10-year bond yields are at a multiyear high of 3.5%, and now everyone is eyeing the outcome of the upcoming US FOMC meeting. On the same day, the Bank of England will announce its interest rate decision,” said Meena. 

Apart from this, the institutional flows will play a critical role because foreign investors have turned sellers after buying regularly for the last month. Domestic institutional investors are also showing some reluctance at higher levels.

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said that a major factor supporting the recent rally in the Indian market has been the sustained FII buying that started in July and gathered momentum in August. As per NSDL data, FPI buying through exchanges in September up to 16 stands at R12,084 crore.