Markets drop for a second day on global cues; eke out 2.5% weekly gain

Benchmark indices fell for a second day on Friday but ended the week with a 2.5 per cent gain. Global investor sentiment was hit by hawkish comments by the European Central Bank (ECB), disappointing earnings from US technology giants and a simmering crisis at Ukraine’s border.

The Sensex fell 143 points, or 0.24 per cent, to end at 58,645. The index gained 1,444 points, or 2.5 per cent, during the week after the capex push announced in the Union Budget drove optimism of revival in economic growth and corporate earnings. The Nifty 50 index fell 44 points, or 0.25 per cent, to finish at 17,516.3.

In the preceding two weeks, domestic markets had crashed 7 per cent spooked by the US Federal Reserve’s decision to start raising interest rates to cool down inflation. On Thursday, the ECB joined the Fed in taking a hawkish turn as its President Christine Lagarde no longer ruled out an interest-rate hike this year. Meanwhile, the Bank of England Thursday raised interest rates back-to-back for the first time since 2004 as it began the process of quantitative tightening.

Domestic markets started this week on a strong note but gave up some gains amid these headwinds.

Earlier this week, the Finance Minister Nirmala Sitharaman announced plans to increase capital spending by 35 per cent to Rs 7.5 trillion in the next financial year, seeking to bolster the economy’s recovery after disruptions from the pandemic.

“Domestic indices had a bull run during the first half of the week as the Budget was in line with market expectation. As global cues turned in favour of bears, the domestic market turned volatile towards the end of the week. US markets were under pressure following weak earnings numbers reported by Meta. The European market also lacked strength as the Bank of England imposed a back to back rate hike while the most dovish European Central Bank acknowledged the risk of rising inflation signaling a rate hike in near future,” said Vinod Nair, Head of Research at Geojit Financial Services.

“In the coming week, RBI’s policy meeting will be the major event awaited by the domestic investors. RBI may begin its policy tapering with an increase in reverse repo rate keeping repo rates unchanged," he added.

Overseas investors sold shares worth Rs 2,268 crore, while domestic institutions were net-buyers to the tune of Rs 622 crore.

“Market is witnessing higher volatility but the sentiment has improved post the Budget. Now the focus would shift to the rising interest rate regime globally and consequent higher bond yields. Surge in oil price to seven-year high of $92 per barrel would present further challenge for inflation. The December quarter earnings has been good so far as companies largely delivered on the earnings front, despite the unprecedented inflationary pressures from rising commodity and energy prices. The corporate earnings delivery is highly crucial, in a rising rate regime which is getting well reflected in the market with poor performers getting battered severely,” said Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services.

As per Bloomberg data, out of the 33 Nifty 50 companies that have announced results so far, 18 either met or exceeded analyst estimates, 13 missed and two can’t be compared.