Stocks suffer worst weekly fall in 2 yrs

Mumbai: Indian indices experienced their worst week since May 2020, moving under the impact of an aggressive 75bp rate hike by the US Fed, which is expected to continue to pressure markets in the coming days.

The Sensex and the Nifty ended the week 5.42% and 5.61% lower than the week before, their worst performance since the week of May 5, 2020, when both indices lost more than 6% in a week.

Fears of further aggressive rate hikes by the Fed and the same forcing other central banks to raise rates at the same time have raised fears that the global economy is headed for a slowdown. High interest rates, coupled with sticky inflation, are expected to keep corporate judgments in check, even leading to a growing number of downgrades, adding further pressure to markets, experts say.

“After the US Fed decision on rates and guidance for the QT trajectory and sequential interest rates were announced. The markets initially started a relief rally after a major event was over. But sooner rather than later, markets have refocused on the overall slowing economic growth forecast and fears of sliding into recession amid seemingly high inflation, which could lead to downward earnings revisions for the corporate sector that will hit the markets. down,” said Narendra Solanki, Anand Rathi’s head of Research, Investment Services, Financial Services.

Sensex

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Sensex

He added that the coming weeks are now crucial as markets take stock of inflation data following this surge and until then markets are expected to remain volatile.

According to Gautam Shroff, MD & Head, ICG, Edelweiss Securities Ltd, markets are gradually shifting from Fed fears to growth fears, diminishing the likelihood of a soft landing.

“While commodity inflation has declined on the demand side; supply problems persist (crude oil and food) and services inflation is still rising and is often a significant lagging indicator (staying high during the recession). This could slow down the disinflation process in the near term,” he said, adding that any easing of geopolitical tensions could help improve supply prospects for crude oil and food, which will be very welcome.

“We maintain a cautious stance, but from the medium-term outlook we remain optimistic given the strong bank balance sheets, corporate balance sheets and also the benefit of the reforms to come,” added Shroff.

The Fed’s move is also likely to further boost sales of FII, which has already netted Rs2 trillion this year.

“In May, FPI sold share value 45276cr. The relentless sale continued into June and until June 17, FPI’s had sold shares worth Rs. 28445cr. For CY 2022 to June 17, FPIs have sold shares for an amount of 202244 cr. FPIs have sold a lot in other emerging markets such as Taiwan and also in South Korea. The strengthening of the dollar and rising bond yields in the US are the main triggers for the sale of FPIs. In India, FPIs continued to sell in financials and IT, where their stake is greatest,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Rising interest rates and yields will move more capital from stocks to bonds, Vijaykumar said.

“Since the Fed and other central banks such as the Bank of England and the Swiss Central Bank have raised interest rates, there have been synchronized rate hikes worldwide, with interest rates rising. Money is shifting from stocks to bonds,” he said.

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