Will markets dip more on Fed's hawkish chorus?

Domestic markets slipped on Monday after the US Federal Reserve firmed up its ante against inflation and dismissed talks about any softening in its monetary policy.

The US Fed’s chairperson Jerome Powell reiterated that the central bank will continue with the rate hike cycle to tame inflation. This, he added, will also bring some pain to the US economy.

As global markets plunged, the Sensex and Nifty indices declined the most in around a month.

The selloff was led by Nifty IT index, which shed 3.5%. Besides, the tough talk on rate hikes and likely economic slowdown has also renewed recession fears in the western economies. 

Meanwhile, RIL also ended nearly 1% lower at Rs 2597despite the AGM announcements on 5G rollout and the new giga factory for power electronics on Monday and added to the overall weakness.

That said, experts say that rising rates in the west could actually be favourable for India.

According to G Chokkalingam of Equinomics Research, “For a few more weeks, the Indian market may remain volatile with a downward bias but eventually it would benefit from anticipated interest rate hikes in the West, which would bring down their aggregate demand and consequently oil prices.” 

On the other hand, with rate hikes expected to be the order of the day, the strength in the dollar weakens the case for foreign inflows, analysts say.

The rupee on Monday slumped to an all-time low of 80.14/$ as the dollar index soared to a new 20-yr high of 109.4 during intraday deals on Monday.

VK Vijaykumar of Geojit Financial Services said, “The sharp rise in the Dollar index and the 10-year bond yield is negative for capital flows to emerging markets like India. FPIs are unlikely to continue buying in India in this scenario. Investors should not rush in to buy the dips now and should wait for the dust to settle.”

Technical charts, however, suggest the outlook for frontline indices remains positive over the medium term.

Avdhut Bagkar of Business Standard says, Sensex, Nifty support at 200-DMA (56,889 and 16,975). The medium-term trend remains positive, he says, adding that resistance will at 58,700 (for Sensex) and 17,500 (for Nifty). 

On Tuesday, global cues will likely dictate the market’s direction back home. Rupee level and brent crude prices will also be tracked by market participants.