After plunging to over a year low, marking the worst week since the pandemic hit in May 2020, the bearish trend in Indian equities is far from over, and that slide will likely continue in the week ahead.
With the latest market meltdown pointing to global recession risks, the worst is not likely over for Indian equity benchmarks – the 30-stock S&P BSE Sensex and the broader NSE Nifty – with trading bias tilted to the downside in the near term, at least.
Investors’ wealth tumbled by more than Rs 18 lakh crore during the sixth straight session of losses in the Indian blue-chip indexes, which is worth more than Reliance Industries Ltd’s market capitalisation of 17.5 lakh crore.
To put the magnitude of that investors’ loss, in just 6 days, into context, Reliance Industries had become the first Indian company to hit the Rs 19 lakh crore market valuation mark following a rally in its share price on April 27.
PTI reported that equity markets focus is likely to shift to global trends in the absence of any major domestic event scheduled in the week ahead, and investors are likely to keep a tab on foreign fund movement and crude oil prices.
The progress of the monsoon would also be monitored, with profit-booking likely to reduce the selling pressure.
The themes that led to the massive downfall, capital outflows driven by aggressive monetary policy tightening by inflation-fighting central banks, higher commodity prices from the Russia-Ukraine war-led supply chain distortion and China’s renewed stringent restrictions from another wave of COVID infections, have not dissipated yet and are not likely to abate anytime soon.
“Relentless selling by FIIs is a key concern for Indian markets. The rupee movement and monsoon development will be other important factors for the market,” Santosh Meena, Head of Research at Swastika Investment, told PTI.
The increasing global central banks’ hawkishness has fueled wild moves in global markets as they rush to unwind the pandemic-driven monetary support measures which have helped propel asset prices higher for years.
Indeed, major world central banks have doubled on tighter policy to tame runaway inflation, setting investors’ fears of a global economic slowdown and, in some cases, recession.
Those fears have gained traction and are reflected in world stocks closing out at their steepest weekly slide since the pandemic meltdown of March 2020. That magnitude of the meltdown is similar to financial markets’ reaction to fears of a global economic recession from the pandemic back in 2020, which has turned out more or less accurate.
US’ S&P 500 entered bear market territory last week when the index extended a decline from its record to more than 20 per cent. The index’s 5.8 per cent decline in its worst weekly drop since March 2020.
“The S&P 500 and our banking index have officially entered the bear market territory, and the fear witnessed this week is expected to continue. The movement of the dollar index, crude oil prices, and the evolving COVID situation in China and India will be closely watched,” Yesha Shah, Head of Equity Research at Samco Securities, told ANI.
As there are no other major domestic or international macroeconomic events in the coming week, the Indian indices are expected to be jittery, moving in tandem with the global peers, said Mr Shah, adding that investors should remain cautious and begin making small, selective investments.
“We recommend that traders maintain a negative to neutral outlook in the coming week and use any bounce as an exit opportunity,” he added.
Moreover, for fresh cues, the market participants will also monitor the latest rise in the Covid caseload and the progress of monsoon in the country.
“After the decisive breakdown of major support around 15,650, Nifty is now inching towards the 14,800-15,000 zone. In case of a rebound, the index would face stiff resistance around 15,550-15,700 levels. On the other hand, investors can selectively look for buying opportunities as several quality stocks are now available at a good bargain,” Ajit Mishra, Vice President for Research at Religare Broking, told ANI.
In India, retail inflation has also been over the Reserve Bank of India’s upper tolerance band of 6 per cent for the fifth consecutive month in a row. The central bank has projected consumer-price inflation to stay above that threshold for the rest of this calendar year before moderating, and wholesale inflation has been double-digit for over a year.
Still, global cues will drive trading moves in the coming week.
“In the absence of any major domestic event, global cues will continue to dictate the trend. Participants will also be eyeing COVID cases trend and progress of monsoon,” Ajit Mishra, VP – Research, Religare Broking Ltd, said.