Will strong FII flows reduce rate hike fears this week?

Volatility swept domestic markets last week, marred by declining global sentiments, after the US Federal Reserve Chairman Jerome Powell propelled rate hike concerns on reiteration of hawkish stance.

Yet, strong foreign inflows helped frontline indices end flat.

The benchmark index Nifty50, for instance, dipped a meagre 0.1% last week, while the BSE Sensex fell 0.05%.

While analysts attribute the Indian markets’ resilience to healthy foreign inflows, they fear the peak of FII buying may be over.

According to VK Vijaykumar of Geojit Financial Services, “FIIs are increasing their short positions in derivatives amid a surging dollar index, that hit a 20-year high of 109.6 last Thursday. This, and the US 10-year bond yield racing to 3.26%, is unfavorable for emerging market equities.” 

Analysts at Credit Suisse, too, have downgraded equities to ‘underweight’ on the back of rising inflation and recession fears.

Going forward, analysts see markets to remain range-bound in the near-term.

Neeraj Chadawar, Head - Quantitative Equity Research, Axis Securities says RBI’s rate hike trajectory to guide markets. Watch out bond yield cues, commodity prices. Markets to remain range-bound in near-term.

Apart from FII buying, falling crude oil prices also supported Indian equities last week.

Brent crude prices have retreated below the 100 dollars per barrel-mark, and may be heading towards 80 dollars per barrel level, hopes Mohammed Imran of Sharekhan.

He says, “We expect prices to fall further under $80 in coming weeks. Though a resilient labour market in the US may push crude to test resistance of $92, we remain bearish on crude oil outlook in near term.”

Against this backdrop, technical charts suggests that the 50-pack index can move towards 17,850 levels this week with a support of 17,350 on the downside.

The S&P BSE Sensex, meanwhile, can steer towards 59,800 on the upside with 58,000 acting as a strong support.

Fundamentally, the European Central Bank’s interest rate decision, rupee movement, and crude oil prices will guide markets during the week.