Though the S&P 500 and Nasdaq in the US rallied on Friday, domestic market sentiment will remain cautious as foreigners’ appetite for Indian equities has been waning. Investors will await the Reserve Bank of India’s comments on inflation and bond yields after the monetary policy review on Thursday in the wake of rising oil prices and the government’s higher spending plans.
On Friday, most US indices rose, digesting a much stronger-than-expected jobs report that underlined expectation for aggressive rate hikes by the US Fed. The Nasdaq rose 1.6% after strong results from Amazon.
Money managers said while the jobs report may not cause a significant fall in Asian markets, it strengthens the case for the American central bank to begin liquidity tapering from March, which does not bode well for markets such as India which have benefited significantly from the easy monetary policies of global central banks amid the coronavirus pandemic. Last on Thursday, the Bank of England raised its main interest rates for the second time in a row in the face of decades-high inflation.
“US markets were held up by tech companies despite strong jobs data and there were great results from Amazon. With oil prices at 93 ($ per barrel), I feel the pressure will be on the downside; Asia doesn’t have such mega stocks to save the day,” said Andrew Holland, CEO, Avendus Capital Alternate Strategies. “I don’t think markets will be significantly down and given that Wall Street ended on a reasonably good note. The market will focus on what the RBI says.”
The Nifty ended down 43.90 points, or 0.25%, at 17,516.30 and the Sensex ended down 143.20 points, or 0.2%, at 58,644.82. For the week, indices ended up 2.4% with the Nifty about 1.6% away from the crucial resistance level of 17,800. In the past few weeks, the markets have slipped after the index came close to these levels.
This time, investors are watching whether the market will be able to ignore the US jobs report and multi-year high oil prices.
“The jobs data is just one more data which reinforces the whole assumption so markets will be volatile,” said Jyotivardhan Jaipuria, founder, Valentis Advisors, a Mumbai-based investment manager. “The jobs data has reinforced that the Fed is moving in March for sure and they will move up quickly as the economy is strong. It is not the jobs report per se but markets are pausing after a strong run for many months.”
The domestic equity market has remained resilient despite the government’s higher spending plan announced in the budget last week that led to a spike in benchmark bond yield. The RBI’s policy meeting outcome on Thursday will give markets a sense of the central bank’s view on rising inflationary pressures worldwide.
Brokerage Edelweiss said in a note the RBI is likely to continue to maintain an accommodative stance. “To perk up money market rates (already hardening slowly), there is the possibility of the reverse repo rate seeing a 25 basis points hike,” the brokerage said.
