Global cues may keep Indian equities volatile

Indices were more than half a percent lower in early trade but later trimmed some losses (Photo: Bloomberg) — Indices were more than half a percent lower in early trade but later trimmed some losses **(Photo: Bloomberg)**

2 min read . Updated: 07 Sep 2022, 01:54 PM IST Ujjval Jauhari

Strong dollar, hawkish Fed bets, and fresh covid-19 lockdown in China could continue to weigh on sentiments in the near-term

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Indian equity markets continued to see volatile trade with the benchmark indices Nifty and Sensex declining on Wednesday amid weak sentiment globally.

Indices were more than half a percent lower in early trade but later trimmed some losses and were down 0.3% each currently.

Global sentiment turned weak with the release of the US PMI data which showed the services industry picking up in August, fuelling fears of the Fed hiking interest rate sharply to check inflation. This also dragged Wall Street and Asian stock markets lower.

Analysts said that the US Fed Chair Jerome Powell could take the liberty of being more hawkish. The higher rate hike expectations are also reflected in the rising US treasury yields that surged following the economic data. Rising yields may add to the pressure on the rupee and also hit FPI or foreign portfolio investors.

Strong dollar, hawkish Fed bets, and fresh covid-19 lockdown in China could continue to weigh on sentiments in the near-term, feel experts.

Sageraj Bariya, vice president, Institutional Sales at East India Securities Ltd. said speculative reading on aggressive rate hikes added to the gloom on trading floors as investors face a range of headwinds, including a worsening energy crisis in Europe, Russia's war in Ukraine and Chinese economic woes caused by covid lockdowns, said

Euro also slipped to a new 20-year low against the dollar on reports that the ECB may decide to scale down an expected 75 basis points hike on Thursday. Rising dollar index and bearish FPI positions in the index futures do not support a run-up move for the markets in the near-term, added Bariya.

"There are near-term strong headwinds for risky assets, globally. Bonds are in a strong bear market. US 10-year yield at 3.34 % and dollar index above 110 are strong headwinds for capital flows to Emerging markets like India," said V K Vijayakumar, chief investment strategist at Geojit Financial Services.

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The positive for the Indian economy is that crude oil prices are lower and this may cushion the fall in Indian markets.

When globally equities correct, India too will follow suit, feel analysts. For India, falling crude, decent economic growth, impressive corporate earnings and retail investor enthusiasm will support the market at lower levels.

Domestic economy-facing segments like banks, autos, capital goods, telecom and FMCG are relatively strong sectors, said Vijaykumar.

However, overall strengthening dollar, hawkish Fed bets and a new Covid-19 lockdown in China could continue weigh on sentiments in the near-term, feel experts.

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