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Huge fall ahead for Nifty after red-hot US inflation data?


The domestic inflation data for May, US Fed interest rate decision and FII behaviour are the crucial factors that would dictate terms in the equity market this week, analysts said. The rupee’s movement vs US dollar and crude oil prices will be also on the radar of traders. Indian stock market benchmark Sensex on Friday fell over 1,000 points as investors shunned risky assets on worries that aggressive interest rate hikes by global central banks would stifle economic growth. The Nifty on Friday ended 1.68% lower at 16,201.

On Friday, US government data showed inflation reached 8.6% in the 12 months ended in May, the steepest rise in consumer prices since December 1981, on the back of surging energy and food prices, leading to a massive selloff on Wall Street. The US inflation data was released after closure of Indian markets.

Nifty futures on Singapore exchange are down at 16,048, showing a deep cut when Indian markets open on Monday. 

Following the US inflation report, two-year US Treasury yields , which are highly sensitive to rate hikes, spiked to 3.057%, the highest since June 2008. Benchmark 10-year yields reached 3.178%, the highest since May 9. The Dow Jones Industrial Average on Friday fell 880 points, or 2.73%, to 31,392.79; the S&P 500 lost 116.96 points, or 2.91%, to 3,900.86; and the Nasdaq Composite dropped 414.20 points, or 3.52%, to 11,340.02.

Also, on Friday, the rupee tumbled 19 paise to close at a fresh lifetime low of 77.93 against the US dollar on Friday as rising crude oil prices and unabated foreign capital outflows soured sentiment. A sell-off in equity markets and stronger greenback overseas also weighed on the domestic unit, forex traders said.

On the domestic front, retail inflation will be announced on June 13 and wholesale inflation on June 14.

“All eyes will be on the US FOMC (Federal Open Market Committee) decision scheduled on June 15, and the market is fearing aggressive rate hikes amid inflation monster. Bank of Japan will also announce its credit policy on June 17. It will be crucial to see FIIs’ behaviour amid panic in global equity markets because they are selling relentlessly for the last 8 months,” says Santosh Meena, Head of Research, Swastika Investmart Ltd.

Ajit Mishra, VP – Research, Religare Broking, says equity 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. We expect Nifty to find support around 15,650-15,900 levels while the 16,500 and 16,800 levels would act as strong hurdles in case of any rebound. Despite the prevailing negativity, stocks from the auto and oil & gas space are doing well and are likely to maintain the bias. On the other hand, metals and PSU banks may offer fresh opportunities to create shorts. We advise aligning positions accordingly and suggest preferring hedged bets,” he added.

Domestic industrial output growth data released on Friday showed activity rising to eight-month high of 7.1% in April on the back of improved performance by power and mining sectors, as per government data released on Friday.

“A 7.1% industrial production growth in Apr’22 was strongly supported by low base during the severe COVID-19 second wave. However, the sequential decline reflects the weakness in numbers. The strength witnessed in early high frequency indicators such as manufacturing PMI, GST collection etc. is not yet translating into industrial production. Categorically, except for electricity, industrial production broadly remained lacklustre in April 2022. Sequential decline in capital goods, which is a proxy for investments is worrisome. Also, persisting contraction in consumer durables adds to concerns of weakening consumption growth amidst rising prices, which needs policy attention,” said Vivek Rathi, Director-Research Knight Frank India.

 

 

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