Even though domestic investors are worried about the impact of interest rate hikes by global central banks and global uncertainties on the Indian stock market, experts said it will affect the domestic market to some extent, but strong participation of individuals and institutions here can prevent the market from having a severe impact.
Recently, the US Federal Reserve raised interest rates for the first time since 2018. It also plans to raise rates several times this year, given the 40-year-old high inflation of 7.9% in the United States. United States in February, propelled by soaring costs for gas, food and housing.
Piyush Garg, Chief Investment Officer of ICICI Securities, said: “Given the global supply chain shock, the ongoing Russian-Ukrainian war, high crude oil prices and high inflation rates in Globally, equities are likely not to fare well during the US rate hike cycle going forward. .”
Currently, Brent Crude Oil stands at $114.36 per barrel.
He added, however, that some stocks, such as information technology and banking, may not feel the heat, but the consumer sector could be negatively affected.
The US Fed recently raised the target range for the federal funds rate to 0.25-0.5% and expected continued increases in the target range would be appropriate. Last week, Fed Chairman Jerome Powell also said the central bank would raise rates “more aggressively” if needed.
According to independent market analyst Ambareesh Baliga, “markets may be negatively affected by US Fed rate hikes to some extent in the future as foreign portfolio investors withdraw their money from the country to safe havens in United States, but growing retailer participation may prevent markets from slipping too far.”
Between April and October 2021, about 1.9 crore accounts were opened thanks to the good returns during the pandemic.
However, Baliga said markets are no longer too reliant on REIT funds compared to previous periods and domestic participation should keep the market positive.
On Friday, REIT investments saw a net outflow of Rs 1,507 crore, while domestic institutional investors put Rs 1,373 crore in the market on the same day, according to data available on the BSE website.
In the last three months to March 28, REITs withdrew a net amount of Rs 1,15,272 crore from Indian markets, according to the latest NSDL data.
Areas that might not cope with the heat
According to experts, the impact of the US Fed’s rate hike will not be the same on all stock markets. Some stocks may do well during the rate hike cycle while others may be too affected given other external factors.
ICICI Securities’ Garg said, “IT, banking and some of the engineering companies are now promising and investors may be interested in them.”
Sensex IT companies such as Tata Consultancy Services, Infosys and Wipro have performed well in the 20-50% range over the past year as the BSE benchmark has risen 16% .
Garg, however, said caveats such as non-performing asset (NPA) status and REITs’ overweight in the banking sector could present risk.
Over the past year, the banking sector has underperformed the benchmark and delivered mixed returns. Some banking stocks such as State Bank of India (38%) and private lender ICICI Bank (22%) performed well year on year, while Punjab National Bank (-2.2%) and HDFC Bank (-4.69 percent) gave negative returns. Axis Bank only increased by 4.47% between March 31, 2021 and March 28, 2022.
Baliga said, “IT and pharmaceutical companies should do well going forward, while banks may also do well subject to the NPA scenario.”
Persistent outflows are putting downward pressure on the rupiah, which could help export-oriented sectors such as IT and pharmaceuticals, he said.
Among the sectors likely to suffer the most negative impact from the US Fed’s rate hike and other external factors are consumer, manufacturing and metals.
Baliga said with high commodity prices due to the global supply shock and uncertainty from the Russian-Ukrainian war, the manufacturing sector could be stressed in the next two quarters. Thus, investors should choose manufacturing stocks carefully at least until the end of the Russian-Ukrainian war.
Garg said consumer sectors could be the hardest hit during the upcoming US rate hike cycle given other external factors. “This is due to high commodity prices globally.”
Rising domestic inflation and the planned tightening of monetary policy by the RBI to keep inflation below the 4-6% target range should also be watched. Retail price inflation in February hit an eight-month high of 6.07%.
Experts said investors should be cautious going forward due to global uncertainty due to high crude oil prices, the COVID-19 situation and the Russian-Ukrainian war, but the impact will not be not equal in all sectors and some industries may be doing well.
While retail investors have made a lot of money on their investments, now they can also look to make a profit and enter the market after a while when the uncertainty dissipates, Baliga said.
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