By Rahul Shah
Equity benchmark Sensex nosedived over 700 tracking losses in global peers as investors had mounting fears that the US Federal Reserve’s aggressive policy tightening could tip the economy into a recession. Sentiments have been dampened after the Indian rupee breaches to an all-time low of above 81 against the US dollar on the back of US Treasury yields climbing to fresh multi-year highs. India Vix surged nearly 5% to close at above 20 against the previous week’s close which indicated higher volatility. US Fed hiked interest rate by 75 bps for a third consecutive time and signaled further aggressive tightening. US Fed turned more hawkish than anticipated increasing its rate forecast to 4.4 per cent by the end of 2022.
Sensex slipped 734 points or 1.2% to close at 1-month low of 58107 and Nifty plummeted 302 points to close at 17328 against the previous week’s close. Banking stocks declined sharply (Bank Nifty slipped 3%) ahead of the RBI policy meeting this week on 30th Sept and concern of 10-Year G-Sec Yield surged to a 2-month high. The expectation that the Reserve Bank of India (RBI) will increase rates by 50 bps but commentary will be important for the market sentiment tech stocks declined marginally while Accenture announced in line with expected quarterly earnings. Accenture announced marginally below its Q1 earnings guidance which was better than street expectation.
Moreover, September auto monthly sales data will be announced on 1st October on Saturday and both US and European Nation quarterly GDP data will be the focus this week. Indian bourses are outperforming global peers but the level of 113 in the US dollar index at 20-year high and the level of record-high 82 in USD INR spooked the market sentiments. FIIs have started selling again in the Indian equity market (nearly 5000cr net seller this week) and further selling pressure may not be ruled out on account of selloff mode across the global markets. Markets are uncertain about the trajectory of rates in the short term, with the yield on two-year US Treasuries rising to 4.27%, its highest since 2007, before the global financial crisis.
The 10-year Treasury yield hit 3.82%, its highest since 2010. The indication is that 125 bps more rate hikes can be expected in the next 2 policy meetings scheduled this year. US, Europe and Asian markets fell 4-6% against the previous week’s close after the US Fed on Wednesday delivered its third consecutive 75-basis-point rate hike this year, bringing the federal funds rate to a new range of 3 percent to 3.25 percent, in a bid to rein in inflation. The size of the rate hike was widely expected, but the pace of future tightening implied by the Fed’s updated economic projections was more aggressive than anticipated.
On Wednesday, Fed chair Jerome Powell stressed his resolve to lift rates high enough to drive inflation back toward the central bank’s 2% goal from 8% currently. The Fed also released a forecast known as a “dot plot” that showed it expects its benchmark rate to be 4.4% by year’s end, a full point higher than envisioned in June.
Moreover, the market is also worried about the escalation in the Russia-Ukraine conflict. Commodity prices declined sharply globally as Brent crude fell to 9-month low, gold price fell to 2 years low. Copper and aluminum price slipped to 1-year and 2-month low which may negatively impact in the domestic market. However, positive factors such as fall in oil price and strong economy data may support Indian markets. Traders buy on decline strategy and recommend to buy on strong fundamental stocks in the falling market.
Nifty has formed a big Bearish candle on daily scale and a Bearish candle with longer upper shadow on the weekly frame which indicates pressure at higher zones. Now, till it remains below 17442 zones, weakness may be seen towards 17250 and 17000 zones whereas hurdles are placed at 17550 and 17667 zones.
CMP: Rs 2076| SL: Rs 2030| Target: Rs 2200
Escorts Kubota has retested the consolidation breakout on the daily scale and it has given a fresh breakout on the weekly and monthly scale which indicates a strong setup with positive price movement. It has formed a bullish candle on the daily scale indicating buying interest. RSI oscillator is also positively placed on daily and weekly charts. Considering the current chart structure, we advise traders to buy the stock for upmove towards 2200 with a stop loss of 2030.
CMP: Rs 2682 |SL: Rs 2630| Target: Rs 2750
HUL has given falling channel breakout on a daily scale with noticeable volumes. It has formed a bullish candle on the daily chart and negated lower highs formation after three weeks. Buying is visible across FMCG Space and small follow-up can take it towards higher territory. RSI oscillator is also positively placed on daily and weekly charts. Considering the current chart structure, we advise traders to buy the stock for upmove towards 2750 with a stop loss of 2630.
(Rahul Shah is the Senior Vice President, Group Advisory Leader-PCG, Broking & Distribution, Motilal Oswal Financial Services. The views expressed are the author’s own. Please consult your financial advisor before investing)