Indian shares suffer biggest weekly decline in 2 yrs
MUMBAI: Whipsawed by the US Federal Reserve’s aggressive interest rate hike, Indian stocks closed their worst week since May 2020 on Friday, with continued pressure likely in the days ahead as well.
The Sensex and the Nifty fell 5.42% and 5.61% from the previous week, their steepest loss since the week ended May 5, 2020, when both indices lost over 6%. The possibility that the US Fed may raise rates steeply again and other central banks may follow suit has raised fears that the global economy may be headed for a recession.
High interest rates and sticky inflation may keep corporate earnings under check and trigger earnings downgrades, putting markets under further pressure. “After the US Fed decision on rates and guidance on the path for QT (quantitative tightening) and successive rates were announced, the markets initially witnessed a relief rally on the back of a
major event getting over. However, markets have re-aligned their focus towards overall slowing economic growth forecast and fears of falling into recession amid seemingly high inflation, which has the potential of triggering earnings downgrades for the corporate
sector, leading the markets down,” said Narendra Solanki, head of research, investment services, Anand Rathi Financial Services.
He added that the next couple of weeks are crucial as investors take stock of inflation data after the Fed action, and
during this period, markets are expected to remain volatile.
According to Gautam Shroff, managing director and head of international clients group, Edelweiss Securities Ltd, the markets are progressively moving from the Fed tightening scare to a growth scare as they see slimmer chances of a soft landing.
“While goods inflation has eased from the demand side, supply issues linger (with respect to crude oil and food), and services inflation is rising still and is very often a significant lagging indicator (remaining elevated throughout recession). This may keep the disinflation process slow in the near term,” he said, adding that any easing in geopolitical tensions could help improve the supply outlook on crude oil and food, which would be very welcome.
“We maintain a cautious stance, but from a mediumterm outlook, we remain bullish, given the strong bank balance sheets, corporate balance sheets and also the benefit of reforms which is due,” added Shroff.
The US Fed move is also likely to speed up selling by foreign portfolio investors (FPIs), already at ₹2 lakh crore so far this year.
Rising interest rates and yields will move more capital from equities to bonds, Vijayakumar said.