Rate Hikes, Rising Crude Prices Help Bears To Maintain Grip Over Market

D-street bears managed to solidify their grip over markets on Friday as Indian equity benchmarks tumbled sharply, tracking Asian markets and the selloff on Thursday in the US. Also, rising crude oil prices dented investor sentiment. Oil prices climbed for a third straight session on Friday guided by a possible embargo on Russian oil by the European union.

The OPEC+ grouping on Thursday agreed to boost its monthly oil output increase modestly citing weakening demand outlook due to coronavirus lockdowns in China.

Also, the global trend of central banks raising interest rates continued as the Bank of England increased its interest rate by a quarter basis points, warning that the economy could shrink in 2023 while projecting a 10 per cent plus inflation.

“Central bank actions kept domestic and global markets under pressure this week. In line with global markets, BSE Sensex and Nifty 50 index saw profit booking this week and was down by ~4 per cent. Broader indices like BSE Midcap and BSE Small cap also saw meaningful correction. Majority of sectoral indices were down between 3-6 per cent. Sustained high inflation continue to drive monetary tightening measures from Central Banks across different countries,” said Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities.

“This week markets reacted to interest rate increase by Central Banks like US Federal Reserve, Bank of England and RBI. In an off-cycle meeting, the RBI MPC hiked the repo rate by 40 bps to 4.4 per cent and increased CRR by 50 bps to 4.5 per cent. Amid rising interest rate, elevated crude oil price and high inflation, the markets will likely remain volatile. Further, stock specific action can be expected based on Q4 results and management commentary,” added Chouhan.

The 30-share Sensex ended 866.65 points or 1.56 per cent lower at 54,835.58. Its broader peer Nifty ended 271.40 points or 1.63 per cent at 16,411.30. Domestic stocks lost nearly Rs 4 lakh crore in value, led by heavy selling across the board.

“Markets were in southward direction right from the start of the trading session and selling intensified thereafter as rising crude oil prices reignited fears that inflation would pose a major challenge going ahead. The market is in a dilemma that in a rising interest rate scenario, a more hawkish stance by the RBI going ahead could hurt growth,” said Amol Athawale, Deputy Vice President - Technical Research, Kotak Securities.

U.S. stocks ended sharply lower on Thursday amid a broad sell-off, as investor sentiment cratered in the face of concerns that the Federal Reserve's interest rate hike the previous day would not be enough to tame surging inflation. The Fed on Wednesday raised interest rates by half a percentage point as expected and Chair Jerome Powell explicitly ruled out a 75-basis-point hike in the next policy meeting.

Another key factor that determined action on Friday was foreign fund outflows and mixed corporate earnings results. Foreign investors have net sold Indian equities worth $635 million so far this week, compared with $881 million offloaded in the same period last week, according to Refinitiv data.

All sectoral indices on the NSE settled deep in the red, with banks, IT and metal scrips being the biggest drags on both benchmarks. Broader markets also bled with Nifty mid and small cap falling around two per cent each.

Reliance Industries fell 0.8 per cent. The oil-to-retail conglomerate is due to report quarterly results later in the day.