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Selling pressure due to weakness in global indices

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Indian stock markets have seen increased selling pressure this week amid weakness in global indexes amid concerns about rising inflation and the risks of earlier than expected interest rate hikes. Both Nifty / Sensex fell 338 / 1,051 points (-1.9% / – 1.7%) to close at 17,765 / 59,636 respectively.

The broad market that initially resisted also felt the selling pressure and ended the week in the red with Nifty midcap 100 / Nifty smallcap 100 down -2.0% / – 1.3% respectively. All sectors finished in the red, metals being the biggest loser (-5.3%), followed by PSU banks (-3.4%) and real estate (-3.3%).

Foreign institutional investors have sold shares worth over Rs 6,000 crore in November so far, while DII bought shares worth Rs 7,800 crore in November.

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Global markets continued to show weakness as investors remained concerned about rising inflation and the impact it could have on monetary policy and growth prospects. The US dollar hit a 16-month high after US retail sales data was much higher than expected. At the same time, the euro has fallen due to growth issues and an increase in Covid-19 cases.

On the domestic side, 2TFY22 earnings exceeded our expectations, led by a) cyclical sectors (such as O&G and metals), b) improving asset quality in the BFSI sector, and c) strong growth of turnover in the technology sector.

The quarter highlighted two important trends: an improving demand environment and the impact of rising input costs on operating margins.

The global market is in consolidation mode because valuations are rich despite good quarterly performance.

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Additionally, global signals are keeping markets volatile as inflation concerns grabbed the headlines and the Fed soon launched its reduction program.

Technically, Nifty has candled bearish on the weekly scale and it is forming highs, lows – lows of the past three sessions. In the near term, weakness may continue towards the 17,650-17,500 areas until Nifty stays below 17,850.

We expect long-term market fundamentals to remain positive and therefore advise investors to continue to accumulate quality stocks should they fall. In the short term, however, the market may remain under pressure until new positive triggers emerge.

Markets will take the lead of expected macro events next week. Key data includes UK manufacturing and service PMI, US existing home sales data. The United States will also release PMI data for Manufacturing and Services.

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Investors will eagerly await US and German GDP data to be released later this week.

On the initial public offering (IPO) front, there would be some excitement surrounding the listing of Latent View on Monday, as the IPO was oversubscribed 326 times.

(The author is Head-Retail Research at MOFSL)

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