Rate and results to drive the equity markets (Market Review)

The possibility of a US rate hike and the pace of foreign fund inflows are expected to drive the Indian equities markets in the upcoming week.

"It is expected that global investors will remain cautious ahead of the policy meetings of the Bank of Japan and US Federal Reserve," said D.K. Aggarwal, Chairman and Managing Director, SMC Investments and Advisors.

"However, there is an assumption that domestic market would continue to move upward as the growth story of the Indian economy is intact and it is expected that market may touch the level of 9,000 in the near future."

The US Fed's FOMC (Federal Open Market Committee) will meet on September 20-21. A hike in US interest rates can potentially lead FPIs (Foreign Portfolio Investors) away from emerging markets such as India.

It is also expected to dent business margins as access to capital from the US will become expensive.

"The US Fed meeting outcome remains the most influencing event for the week. It will drive the global sentiments and hence the flows too," said Devendra Nevgi, Chief Executive of ZyFin Advisors.

"The futures markets are factoring a probability of 15 per cent of a hike. So if a hike comes, the markets will be negatively impacted. A negative event might hit the markets harder due the fact that it has rallied recently."

Nevgi said the commentary by the US Fed and cues on the upcoming monetary policy review of the Reserve Bank of India (RBI) will also be closely watched.

"The upcoming earnings season and the October RBI policy action would be crucial too," Nevgi pointed out.

As per Anand James, Chief Market Strategist at Geojit BNP Paribas Financial Services, equity markets fear that global central banks will stop the easy monetary policies which were pursued so far.

"FOMC rate decision should bring in more clarity to that end, and the second half of next week is expected to see less volatility," James told IANS.

"Oil markets are, however, likely to be more volatile as the much awaited energy conference approaches."

James added that equity market's reaction on last Friday to Deutsche Bank's fine was possibly exaggerated by FOMC rate decision.

The fine led to a correction in the key European indices on last Friday which capped gains of the Indian equity markets.

Besides, the Indian rupee, which weakened last week, is also expected to be closely tracked. The rupee weakened by 30 paise to 66.98 against a US dollar from its previous close of 66.68 to a greenback.

According to Anindya Banerjee, Associate Vice President for Currency Derivatives with Kotak Securities: "We see USD/INR remaining well supported around 66.60/70 levels on spot and the pair needs to make a sustained move above 67.30 to trigger a short squeeze in USD shorts."

"In global markets, the interplay of strong USD, weak bonds and weak oil prices is a bad narrative for emerging markets. The longer this play continues, the more vulnerable emerging markets can become."

Dhruv Desai, Director and Chief Operating Officer of Tradebulls, pointed out that investors will also keep an eye out on the pace of foreign funds inflow into the Indian equity markets.

Provisional figures from stock exchanges showed an outflow of Rs 64.93 crore during the previous week.

Figures from the National Securities Depository (NSDL) disclosed that foreign portfolio investors (FPIs) were net sellers of equities worth Rs 1,005.08 crore, or $150.02 million from September 12-16.

"Investors will closely follow the important cues like the FOMC meeting, FIIs (foreign institutional investors) fund inflow in the Indian equity markets and markets strength and sustainability at higher levels," Desai said.

"Indian equity markets are likely to trade in a volatile manner due to profit booking at higher levels in the coming sessions. Auto and pharma sector stocks are likely to trade firm on support of strong fundamentals."

For the trade week ended September 16, the key indices declined more than half a per cent each. Investors' sentiments were eroded by speculation of a possible US rate hike and weak macro-economic data.

However, key indices showed some recovery on the last day of trade week on the back of short covering and value buying at lower levels.

The 30-scrip sensitive index (Sensex) of the BSE had closed the week's trade with a loss of 198.22 points or 0.69 per cent to 28,599.03 points.

Similarly, the 51-scrip Nifty of the National Stock Exchange (NSE) edged down by 86.85 points or 0.98 per cent to 8,779.85 points.

(Rohit Vaid can be contacted at rohit.v@ians.in)

--IANS

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