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Market volatility looms amid Fed’s hawkish stance and foreign investor selling

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The fresh week is likely to begin on stable note for domestic markets thanks to global cues. However, analysts expect the market to turn volatile due to Fed’s hawkish stance and aggressive selling by foreign portfolio investors. Besides, settlement of F&O monthly contracts this Thursday will add to volatility, said analysts.

Amid lack of any triggers, analysts are worried about valuation of Indian stocks

Hemant Kanawala, Senior EVP & Head-Equity, Kotak Mahindra Life Insurance Company said, “Equity market are expected to remain volatile due to weakness in external environment. While corporate earnings of Indian companies are showing strong growth, valuations aren’t cheap and there is limited room for them to expand. Hence investors are likely to get returns in line with earnings growth till the end of the year.”

IFA Global Research, in a note said, the US Federal Reserve Chairman, Powell struck a hawkish tone saying that though inflation had come off from its peak, it still was too high. He added that the Fed was prepared to raise rates further if appropriate and keep policy restrictive till it was confident of inflation sustainably coming down towards its objective. 

“While the probability of a 25bps hike in September continues to remain unchanged at 20% post Powell’s speech, probability of a 25bps hike in November has risen to 48% from 42%. The probability of a 25bps hike in December has risen from 39% to 45%,” the note added. ECB president Christine Lagarde too said that interest rates would stay high for as long as needed to defeat inflation.

Gift Nifty at 19,280 indicates a flat-to-positive opening. Equities across Asia-paicific are up strongly. Storong closing at the US markets last Friday and the china’s move to cut Tax on Stock Trading also fulled rally across the region. However, analysts expect the domestic market to remain cautious. And volatile.

According to Shrikant Chouhan, Head of Research (Retail), Kotak Securities Ltd, “Markets could remain volatile in the coming week due to macroeconomic uncertainty and rising US bond yields. This has been prompting foreign institutional investors to flee emerging market equities, including India and park funds in safe haven US securities. The US Fed’s speech at Jackson Hole symposium on Friday night will be a keenly focussed event as any hint of further rate hike going ahead in view of higher inflation could trigger extended downward spiral and fuel FII fund outflow.”

Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

In view of the strong dollar and rising US bond yields, FPIs are likely to continue selling in the cash market in the near-term. The poor monsoon in August and its skewed spatial distribution may keep inflation elevated, and this is becoming an area of concern impacting sentiments in the market. This might impact FPI investment, too.





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