The central bank is expected to announce the tapering of its $120-billion per month bond-buying program at the meeting with the actual tapering likely to start next month. Global money markets have already started to tighten in expectation of higher interest rates in 2022.
According to some markets, investors have penciled 500 basis points of rate hikes by central banks of the Group of 10 countries in 2022 with the Bank of England and US Fed expected to lead the way.
The ramifications of tightening of financial conditions was already felt in domestic shores as foreign investors became net sellers and net short on the local equity market. The selling from FIIs combined with profit booking from retail investors saw the benchmark indices end in the red for the second successive week.
The Nifty50 index and BSE-Sensex fell over 2 per cent each during the week led by heavy losses in shares of banks and information technology companies – two sectors with heavy FII ownership.
“Markets are expected to remain bearish in the short term due to profit booking across various sectors & weak global indices. The Q2 result season is in progress with the market getting mixed responses from companies declaring their results,” said Rahul Sharma, founder at Equity99.
While the overall sentiment has been bearish over the past nine sessions, today saw the emergence of some signs of investors slowly trickling back to pick up stocks. The broad market managed to fall less than the largecap indices for the first time in many sessions whereas, the volatility gauge fell to near 3 per cent suggesting that investors do not expect the selling pressure to last for too long.
Technical analysts advised traders to keep strict stop losses on their trades as the market stands at a very critical precipice. “The sentiment currently seems bearish. The next crucial support level is now placed at 17,250. A decisive break below this level can extend the price and time correction to a couple of days going ahead,” said Yesha Shah, Head of Equity Research at Samco Securities.
Besides the US Fed, investors’ attention will also be on the ongoing September quarter earnings season as it enters its home stretch. With several state-owned companies and pharma names announcing their earnings next week, both sectors will be in focus.
