Indian equity benchmarks extended their losing streak to a third day on June 7 amid fears that the Reserve Bank of India will the next day increase interest rates when its monetary policy committee (MPC) concludes its meeting.
At close, the 30-pack BSE Sensex was down 567.98 points, or 1.02 percent, at 55,107.34 and the Nifty lost 153.2 points, or 0.92 percent, to end the day at 16,416.35.
“Asian stock markets were mixed Tuesday following a bond sell-off in the US amid anxiety about higher interest rates,” said Deepak Jasani, Head of Retail Research, HDFC Securities. “A surprise 50-basis-point rate increase in Australia (highest in 22 years) raised concern over policy tightening ahead of US inflation data and a European Central Bank meeting this week”.
The crude continued to trade at $120 a barrel, which could fan the inflation further. Not only CPI inflation but also US inflation would be closely watched by the Street this week.
The volatility in the market was forcing investors to stay on the sidelines ahead of the RBI’s policy announcement, as the market had factored in a hike of up to 50bps for repo rate & CRR but any further measures to clamp liquidity would have ramifications for the market trend, Vinod Nair, Head of Research at Geojit Financial Services, said.
Apart from the monetary measures, the RBI’s guidance on growth and inflation forecast would determine the market trend, he said.
Experts expect a 40-50 bps rate hike on June 8 and expect the rates to reach 5.15 percent by August/October.
“The recent measures by the government will aid in keeping the rate hike relatively shallow, though determination of terminal rate will be much more data-dependent given the flux in global conditions,” Jasani said.
Stocks & Sectors
The overall market sentiment was bearish with only the auto index making some gains, while all other sectoral indices ended in the negative territory.
The Nifty Realty was the biggest loser, slipping 1.67 percent. An increase in interest rates doesn’t auger well for the real estate sector and can dampen demand.
Nifty IT, FMCG and pharma each lost more than a percent.
The broader indices followed the benchmarks. The BSE Midcap index lost 0.77 percent and smallcap 0.67 percent.
Given the volatility, the India VIX, which indicates the degree of volatility traders expect over the next 30 days, increased 1.10 percent from 20.20 to 20.42.
Energy and auto stocks had a good day. ONGC, Coal India, NTPC, Maruti Suzuki and Hero Motocorp were the top Nifty performer, gaining between 1.18 and 5.13 percent.
Titan, UPL, Dr Reddy’s, Britannia and Larsen & Toubro were the top losers, declining between 3.09 and 4.45 percent.
Short build-up was seen in Gujarat Gas, Titan, and MRF, while long build-up was formed in ONGC, Indus Towers and GAIL.
Of the 3,418 stocks traded on the BSE, 1,286 advanced, 2,011 declined and 121 stocks remained unchanged.
Outlook for June 8
Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities Ltd
Investors were in a wait-and-watch mood ahead of the RBI’s credit policy announcement even though several economists expect a rate hike to tame inflation.
The market is bearing the brunt of relentless selling by FIIs, which continue to desert Indian equities amid a weakening rupee and a stronger dollar.
Technically, the Nifty broke the important support level of 16,450 to close below it, which is largely negative. The index has also formed a bearish candle, indicating short-term weakness.
For traders, as long as the index trades below 16500, the short-term texture remains weak and the correction wave is likely to continue to 16,300. A further correction can drag the index to 16,225. On the other hand, above 16,500, the index can hit 16,600-16,650.
Prashanth Tapse, Vice President (Research), Mehta Equities Ltd
Technically, the downside risk for the Nifty is at 16,121. If the make-or-break support at 16,121 holds, then expect the bulls to re-group with aggressive targets seen at 16,897-17,250 with inter-week perspective. The Nifty’s 200- DMA is seen at the 17,269 mark.
Ajit Mishra, VP-Research, Religare Broking Ltd
The focus will be on the MPC meeting outcome amid expectations of a further rate hike. Besides, the outlook on growth and inflation will be important.
Traders should be extra cautious about rate-sensitive companies and prefer less volatile stocks for day trade. On the index front, the bias will turn negative below 16,300 else consolidation will continue with the upper band at the 16,500-16,700.
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