Fed Rate Hike: Inflation, Fed rate hike, war among key factors that may steer market this week

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New Delhi: After a sharp fall, domestic equity markets staged a quick recovery amid global volatility. Rising crude prices and war scare escalated the worries among the traders, but investors lapped up shares at discounted prices later in the week.

Benchmark Nifty 50 and Sensex rose about 2 per cent each, whereas indices gauging second rung stocks advanced about 3 per cent each.

“We feel participants should continue with a cautious stance until the prevailing geopolitical tension further eases,” said Ajit Mishra, VP Research. Religare Broking. “The prudent approach is to focus more on risk management aspects.”

Markets are offering opportunities on both sides. However, overnight risk and excessive volatility during the day are not easy to handle, he added. Participants should focus on metal, IT, pharma, and select energy stocks for long trades.

In the upcoming week, the Russia and Ukraine war will continue to steer the markets. The Federal Reserve’s rate hike and economic projections, along with rising crude prices will be the key factors to watch. At the domestic level, traders will eye India’s inflation numbers and FII outflows.

Below are key factors that may be under investor radar next week:

Federal Reserve rate decision

Amid the rising inflation worries, investors may see the first rate hike from the Federal Reserve in the post pandemic era. The Fed has made its intentions clear to increase the rate hikes to a quarter of per cent at the end of its two-day meeting which ends Wednesday.

While inflation is rising across the globe, it is particularly hot in the United States, hitting a 40-year high last month. The Fed was expected to start reducing its balance sheet quicker than in the previous cycle.

FOMC Projections

The Federal Open Market committee (FOMC) will also share its projection for inflation and economic growth for the next two year. The Fed’s commentary for economic growth and outlook will guide the global markets in the short and long term. The central bank should also reveal new forecasts for interest rates, inflation and the economy.

India’s inflation numbers

India will report its wholesale and consumer inflation numbers for February. The Wholesale Price Index (WPI) reports the change in the price of goods sold by wholesalers across India. The higher this number is, the stronger the effect on consumer inflation.

The wholesale inflation across the country rose to 12.96 per cent in January, data released by the Ministry of Commerce and Industry showed. India’s consumer price index inflation is expected to moderate in February 2022 from January levels, said Motilal Oswal Financial Services.

Russia Ukraine crisis

The ongoing conflict between Russia and Ukraine will be keenly watched by the market participants, impacting the global crude oil prices and inflation. However, the situation remains volatile.

Sanctions from the Western states have started to hit the global markets. Energy market has been rattled due to supply crunch with crude oil prices.

Crude oil prices

The recent boil in the crude to multi year highs has spooked the traders globally as the worries of inflation increases. Market experts suggest the rising prices of crude will affect the fiscal maths in India, with a sharp rise in the retail fuel prices. The prices of day-to-day use commodities will also increase, hurting India’s import bill further.

FII outflows

In the first two weeks of March, foreign investors have remained net sellers from the Indian equity market. This is on top of around Rs 70,000 crore in the previous two months of the current calendar year. Analysts fear they will continue to sell mercilessly, and advised investors to be cautious.

Technical Outlook

Nifty 50 indexes closed on a positive note for the week after a short-covering rally was witnessed as geopolitical tensions started easing. Having said that, the short-term trend still remains bearish on the charts and Nifty is facing strong selling pressure around 16,800 levels, said Yesha Shah, Head of Equity Research, Samco Securities.

“The undertone of global indices continues to be bearish as well. Till Nifty decisively breaks above 16,800 levels, we suggest traders to maintain a neutral to the mild bearish outlook,” she added. “Aggressive traders can look to take a short position in the Nifty index on a break below 16,450 while keeping the stop loss around 16,750 levels.”

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