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FOMC, Inflation, Oil Prices, Other Factors to Watch Out For


Stock Market This Week: The market snapped a three-week winning streak and fell more than 2 per cent in the week ended June 10 as inflation risk, growth concerns, elevated oil prices, and FII selling hit the sentiment. Friday’s trade was pathetic with the BSE Sensex tanking more than 1,000 points in a single day. Dragged by a sell-off in IT and bank stocks, the BSE benchmark Sensex cracked 1,016.84 points to close at 54,303.44. Its broader peer, the Nifty 50, settled 276.30 points or 1.68 per cent lower at 16,201.80. The index has logged its worst week in a month.

The week gone by was a volatile one for stock markets as the Reserve Bank of India announced a 50-basis-point rate hike and clearly hinted at even tighter financial conditions going ahead, given elevated domestic inflation.

Experts expect the volatility to remain high in this week as well, with the market first on Monday reacting to US inflation data that came in at 40-year high and industrial output data for April, both of which were released later on Friday. “Markets are again reeling under tremendous pressure across the globe citing sticky inflation which could prompt swift actions by the apex banks ahead. Indications are pointing towards the prevailing negativity to continue, however, bargain hunting in select index heavyweights could cap the damage,” Ajit Mishra, VP – Research at Religare Broking said.

Here are Key Factors that Will Impact the Dalal Street This Week

US Inflation Data

Data released after Indian trading hours on Friday showed that US consumer inflation rose to a fresh forty-year high of 8.6 per cent in May. With the rise in inflation in May outstripping market expectations, the pressure is building on the Federal Reserve to persist with aggressive rate hikes, risks to economic growth notwithstanding.

Reacting to the data, US stock markets slumped on Friday, with the Dow Jones plunging 880 points or 2.7 per cent. The S&P 500 fell 2.9 per cent, while the tech-heavy Nasdaq crumbled 3.5 per cent.

Domestic Inflation Data

CPI inflation remains to be a key factor to watch out for especially after the Reserve Bank of India raised the full-year forecast for FY23 by 100 bps to 6.7 percent, which is over and above its target range of 4 percent (+/- 2 percent). The central bank factored in crude oil price at $105 a barrel, tense global geopolitical situation and hope of normal monsoon among others for its inflation projection.

CPI inflation data will be released on June 13 and WPI inflation will be announced on June 14. Markets participants will keenly analyse whether the import duty restrictions and rate hikes have had a positive impact on the inflation number.

US Federal Reserve Outcome

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

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

Oil on Boil

Crude oil prices remained around and above $120 a barrel last week, which is way above the assumption of $105 a barrel made by the Reserve Bank of India for its full-year inflation projections. This is a crucial factor for India as it is a net oil importer and hence this could be one factor restricting upside in the equity markets for several months now.

The fear of recession and lockdown in China to curb Covid crisis may weigh on oil prices to some extent, but largely tight supply amid geopolitical tensions may keep the oil prices elevated in the coming days, experts said.

International benchmark Brent crude futures closed at $122.01 a barrel, up 1.9 percent over $119.72 a barrel on week-on-week basis.

FII Selling

Relentless selling by FIIs continued in emerging markets, including India, given the negative sentiment across the globe due to rising inflation concerns amid geopolitical tensions and faster policy tightening by central banks. Hence, the factor is expected to continue to cap the upside in equity markets, experts said.

FIIs have been net sellers for eighth consecutive month, net offloading more than Rs 3.45 lakh crore since October 2021 against Rs 2.63 lakh crore of net buying by domestic institutional investors on the same period.

In the week gone by, FIIs have net sold Rs 12,662 crore worth shares, whereas DIIs have managed to compensate the outflow to a large extent by buying Rs 9,611 crore worth shares in same period.

Nifty Technical Outlook

The Nifty registered losses last week in line with global markets, and the benchmark appears to be moving towards a support zone between 15,900 and 16,100, Yesha Shah, Head of Equity Research, Samco Securities said.

“Despite the fact that this week’s trading patterns suggest additional downside, the overall bearish momentum has moderated as Nifty is currently trading above the falling resistance line. As long as Nifty does not fall below 15,900, there is a significant chance that it can test 16,800 levels. We recommend traders keep a neutral view for the coming week and avoid aggressive trades on either side.”

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