Home/ Markets / Stock Markets/  Markets may remain volatile in near term

NEW DELHI : Interest rate hikes by the US Federal Reserve, the Swiss National Bank and the Bank of England, amid the turmoil in the banking sector, kept equity markets under pressure last week, a trend analysts see persisting in the near term.

Analysts expect the stock market to stay choppy and volatile. Foreign portfolio investors (FPIs) remained net sellers during the week ended 24 March due to the prevailing risk-off sentiment and global headwinds. The Nifty fell 1% week-on-week and closed below the 17,000-mark.

The much-awaited Fed’s decision on interest rates hasn’t provided clear directions for the market. Meanwhile, the Indian government’s move to hike the securities transaction tax (STT) on selling options at the end of the week further dented market sentiments.

“The market participants are balancing on very thin ice due to opposing forces of high inflation and an increase in interest rates, coupled with concerns about financial stability, and we expect the markets to remain volatile in the near term," said Nishit Master, portfolio manager at Axis Securities PMS. He said as long as global central banks don’t capitulate and give up on their efforts to fight inflation via rate hikes, markets will keep probing for vulnerabilities in the financial sector, which will keep markets choppy in the near term.

The Fed raised interest rates by another 25 basis points (bps) to 4.75-5% though it signalled that it’s on the verge of pausing further rate increases. The Swiss National Bank too, raised its interest rate by 50 bps, while the Bank of England followed suit, raising rates by 25 bps.

The Fed’s move on rate hike and commentary was anticipated by everyone, making the week eventful. The Fed raised rates but didn’t clarify its future course of action in terms of rate hike strategy and it appears the Fed is unsure how the Silicon Valley Bank crisis may affect the US banking sector, said Sunil Damania, chief investment officer, MarketsMojo. Damania said the Fed would look for financial system flaws and then determine its next step.

Meanwhile the STT hike is also being considered as an untimely step, particularly at a time when the markets are experiencing turmoil. It will have some impact on market sentiments and trading volumes, said Saket Dalmia, president, PHD Chamber of Commerce.

The coming week is a holiday-shortened one and experts predicted volatility to remain high due to the scheduled expiry of March month derivatives contracts. In addition, global cues, foreign flows and movement in crude could further add to this choppiness, they said.

Analysts think uncertainty persists, and concerns about slowdown are adding to pressure on markets on the downside. Further, valuations of the Indian markets have come down significantly post steep correction but are still at a premium to emerging markets peers and their long-term average. This is keeping the upside under check amidst global concerns, despite better growth expectations for India.

Nifty50 currently trades at 18x its FY24 estimated earnings, which is slightly at a premium to its long-term average that can lead to near-term underperformance by the markets, said Master. He expects FPI flows to remain negative in the near term since any crisis globally, including bank runs in a particular region or a crisis with any shadow bank, or a significant emerging or developed market crisis, will lead funds to repatriate money back to their home countries for its perceived safety.

“FPIs are on a selling spree and feeble global cues are further deteriorating the mood. Besides, we can see cracks across sectors and a fresh decline in the broader indices may further dampen the sentiment", said Ajit Mishra, VP - Technical Research, Religare Broking Ltd.

Amid all the pessimism, Mishra expects Nifty to hold the support zone of 16,600-16,800 levels, though the upside also seems capped due to the stiff hurdle at the 17,200-17,400 zone. In such a scenario, Mishra feels it is prudent to stay light and wait for clarity.

While investor sentiments and market expectations are muted in the short term, however experts also recommend investors to capitalize on the chaos in the market by staggered investment during the year as valuations are moderating.

We feel that the market is in the last phase of consolidation as the interest rate trajectory peaks out in the next couple of months and inflation falls in H2 CY23 and CY24, said Vinod Nair, head of research at Geojit Financial Services. He believes that the banking sector’s uncertainty will not spread to other sectors or the economy, but the performance of the banking sector will be soft. A change in monetary policy from hawkish to neutral and a month-on-month fall in inflation will be the key triggers to watch out for, he added.

Ujjval Jauhari
Ujjval Jauhari is a deputy editor at Mint, with over a decade of experience in newspapers and digital news platforms. He is skilled in storytelling, reporting, analysing and writing about stocks, investment ideas, markets, corporates and more. He is based in New Delhi.
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Updated: 26 Mar 2023, 09:16 PM IST
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