Volatility to continue in truncated week

By Arun Kejriwal

Markets have a mind of their own and the best-off predictions do go wrong. In the week gone by, markets chose to climb a wall of worries and also ignored global cues. They gained on four of the five trading days and lost on just one. BSESENSEX gained 817.68 points or 1.42 per cent to close at 58,387.93 points, while NIFTY gained 239.25 points or 1.39 per cent to close at 17,397.50 points. The broader markets saw BSE100, BSE200 and BSE500 gain 1.40 per cent, 1.57 per cent and 1.59 per cent, respectively. BSEMIDCAP gained 1.78 per cent, while BSESMALLCAP gained 2.03 per cent.

The Indian rupee was volatile and under pressure. It however managed to remain flattish and gained 2 paisa or 0.03 per cent to close at Rs 79.23 to the US dollar. Dow Jones gained on two of the five trading sessions and lost on the other three. It closed with small losses of 41.66 points or 0.13 per cent at 32,803.47 points.

Interest rates are being raised across the world with Central banks worried about inflation, particularly retail inflation led by food and energy costs. The Reserve Bank of India (RBI) raised repo rates by 50 basis points to 7.2 per cent. This makes the hike over the three meetings in May, June and August to 1.40 per cent. RBI has maintained its GDP forecast at 7.2 per cent and expects retail inflation at 6.7 per cent for FY22-23.

In yet another development, the Bank of England raised interest rates by 50 basis points to 1.75 per cent. This is the steepest single rise by the central bank since 1995. Incidentally, interest rates in England have risen from 0.1 per cent in December 21 to 1.75 per cent in August 22.

The way central banks are worried about inflation and are raising interest rates, clearly shows the global concern. Its not a factor affecting one or the other country but global. The never-ending Russia-Ukraine war which is already 165 days old is not helping matters. The good part is that grain shipment has begun from Ukraine and it would help to bring down food inflation. Further, and if nothing else the speculation about wheat or grain being available from the food belt of Ukraine and Russia would be set at rest with such movement.

The GST collection for the month of July was robust at 1.49 lakh crore. This clearly sets the expected collection from GST at 18 lakh crore for the current financial year 2022-23. While the number has been around 1.41 lakh crore in the earlier part of the financial year, this is set to rise as the festive season starts in a couple of months and the impact of the rise in GST rates also starts generating higher collections.

The week ahead has a trading holiday on Tuesday and this would affect the momentum in the markets. Expect for all practical purposes the market to start trading from Wednesday onwards as people would like to stay light at end of Monday with global markets open on Tuesday.

Markets have had a smart rise over the last three weeks and have done reasonably well for themselves from the lows made in June 22. The overall rise has been smart, at times vicious where bears were badly trapped and markets gained in about seven weeks around 14.5 per cent. While some sort of consolidation is more than overdue, it may be round the corner or delayed to happen after one more upward thrust. In any case with a strong rally of about 15 per cent in about seven weeks the correction or consolidation would also be volatile and sharp.

Results season would end for the quarter April to June by the end of the week ahead. Post the week ahead, markets would reflect on the quarter gone by and look ahead to the coming quarters. Central banks have raised rates across countries signalling the rising inflation on account of food and energy. While crude oil has softened, it needs to still go down.

Expect markets to play in a broad range in the coming days. This would be in the region of 59,600 on the upper side and 57,200 on the lower side on BSESENSEX. In case of NIFTY, it would be 17,800 and 17,000, respectively. Use rallies to sell and sharp dips to buy in the week ahead. It would be the period where the large cap continues to dominate the markets.

(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. The views expressed are personal)

Source: IANS