Weekly Wrap: Nifty Slumps Over 5.5% On Rate Hike Jitters, Situation Not Seen Improving Soon

The Indian equity benchmarks suffered their biggest weekly loss of 2022 for week ended June 17 after the rate hike by the US Federal Reserve sent global equity markets into tailspin. The Sensex plunged 5.42 per cent or 2,943 points to close at 51,360 and Nifty 50 index crashed 5.6 per cent or 908 points to end at 15,293.

Situation for equity markets, which were already reeling under pressure due to tight liquidity conditions owing to rising interest rates amid high inflation, got worse after US Federal Reserve announced 75 basis points rate hike to rein in inflation which touched new four-decade high mark in May in the US. The US Fed’s action raised tensions among investors as the move to control inflation might tip the US and other major economies into recession.

Globally as well as domestically equity markets saw carnage in the last couple of trading sessions as central banks across the world made aggressive rate hikes and its impact on economic growth. Nifty almost corrected by almost 18 per cent from its peak and is entering the bear phase. Further delay in monsoon, persistent FIIs selling and rising Covid cases have also dented sentiments, analysts said.

The Market Fall In Numbers

Selling pressure was visible across the sectors throughout the week with all the sector gauges compiled by the National Stock Exchange ending lower led by the Nifty Metal index's over 8.5 per cent fall. Nifty Oil & Gas, IT, PSU Bank, Media, Consumer Durables, Private Bank, Realty and Bank indices also fell between 5-8.2 per cent each.

Mid- and small-cap shares also succumbed to selling pressure as Nifty Midcap 100 index dropped 6.15 per cent and Nifty Smallcap 100 index tumbled 7.91 per cent.

Selling pressure was visible across the sectors throughout the week with all the sector gauges compiled by the National Stock Exchange ending lower led by the Nifty Metal index's over 8.5 per cent fall. Nifty Oil & Gas, IT, PSU Bank, Media, Consumer Durables, Private Bank, Realty and Bank indices also fell between 5-8.2 per cent each.

Mid- and small-cap shares also succumbed to selling pressure as Nifty Midcap 100 index dropped 6.15 per cent and Nifty Smallcap 100 index tumbled 7.91 per cent.

Hindalco was top Nifty loser for the week. The stock fell nearly 13 per cent to Rs 682. ONGC, Tata Steel, IndusInd Bank, Coal India, Wipro, Tata Motors, NTPC, UPL, Bajaj Finance and Tata Consultancy Services also fell between 6.5-13 per cent.

On the flipside, Divi's Labs, Britannia Industries and Nestle India were among the notable gainers in ther Nifty 50 basket of shares.

Among the individual shares, RBL Bank was top loser in the Nifty 500 basket of shares. The stock dropped 28 per cent to close at Rs 81.40 after RBL Bank's appointment of former PSU Bank CMD R. Subramaniakumar shocked the investors' sentiment. 

Troubles for RBL Bank started in December last year when the Reserve Bank of India appointed Yogesh K Dayal, its chief general manager, as an additional director on the board of the private lender for a period of two years. Later that month, RBL Bank's Vishawvir Ahuja stepped down as MD & CEO of the bank, and the bank appointed Rajeev Ahuja as the interim Managing Director and Chief Executive Officer of the bank with immediate effect.

The Road Ahead

Analysts are pointing out that the markets are likely to react to global cues in absence of any major domestic event and the trend is likely to remain negative for markets and traders should use any rise as a selling opportunity. However, any bounce in the Nifty or Nifty Bank index cannot be ruled out after going into oversold zone.

"Going ahead, the US Fed chairman's speech and China's interest rate decision would be important triggers for the markets. On the domestic front, the COVID trend and the progress of the monsoon will also be in focus. We reiterate our negative view on markets and suggest continuing with the “sell on rise” approach," said Ajit Mishra, VP - research at Religare Broking.

Siddhartha Khemka, head - retail research at Motilal Oswal Financial Services says that rate hike cycle is likely to continue over next couple of months and that will keep investors jittery and he also advises traders to sell on rise strategy.

"We expect market to remain under pressure with increasing fears of economic slowdown. Given the hawkish commentaries from central banks and record high inflation, rate hike cycle is likely to continue over the next couple of months and would keep investors jittery. Traders should avoid long positions and maintain sell on rise strategy," Khemka said.