It is tough to foresee the trajectory of the market for it is influenced by many factors. And at present, when the market has so many headwinds, uncertainty is the only fact that is certain for the market.
Even market veterans are not able to clearly predict how the market will behave in the near future and when will the volatility end.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services says it in simple words: "A clear trend is unlikely to emerge in the market in the near-term. At lower levels DIIs and retail investors will buy, pushing the market up; at higher levels FPIs will sell, pushing the market down."
"The dominant factor determining the market trend, globally, will be inflation and how far central banks, particularly the Fed, will go in hiking rates to contain inflation," he added.
Rohit Gadia, Founder of CapitalVia Global Research is of the view that the auto sales data in the first week and RBI policy meeting in the second week of June are the key factors which will have a major impact on the market. Apart from this Federal Funds Rate in mid of the June will also have an impact on the security market, he said.
Let's take a look at some factors that will influence the mood of the market in June:
1. The Russia-Ukraine war: The Ukraine war began on February 24 and it still looks far from ending. What is more concerning is that the magnitude of the impact of this war cannot be assessed even now.
The war has had a global impact. It has shot up commodity prices as Russia is a major exporter of fertilizers, ammonia, crude oil, gas and other items like wheat, corn etc.
Ashish Chaturmohta, Director and Head, Advisory Research - JM Financial Services underscored that the Russia-Ukraine war has fuelled the prices of these commodities and has resulted in global inflation.
"The Russia-Ukraine war doesn't seem to end as soon as we think, as other nearby countries like Finland, etc are willing to join NATO, which is exactly one of the major reasons why Russia is fighting against Ukraine. Also recently, EU leaders agreed in principle to cut 90% of oil imports from Russia by the end of this year, which is further pushing up oil prices. Hence until we eye some end to the war, the commodity prices can be expected to be inflated," said Chaturmohta.
2. US FOMC meeting: All eyes will be on US FOMC meet outcome which is expected on June 15. The rate hikes and the trajectory of the dollar and US 10-year treasury yields will impact the market significantly.
As per Chaturmohta, the market is very well prepared for the rate hike. He said it will be important to understand the Fed's commentary on the global scenario and their outlook as that will be the deciding factor for the markets going ahead.
The Fed is of the view that they need to raise interest rates in half-point steps at their next two meetings, continuing an aggressive set of moves that would leave them with the flexibility to shift gears later if needed. The Fed wants the inflation back to 2 percent levels, and seeing their current strategy it signals policy will be more data-dependent after Fed meetings in June and July.
3. RBI MPC outcome: The RBI MPC meet is scheduled between June 6-8 June. The RBI governor Shaktikanta Das has already said that a rate hike is a "no-brainer", and that is what the bankers are also expecting.
While the rate hike is expected, the question remains how much rate hike is the RBI willing to execute, said Chaturmohta.
The governor also mentioned that the RBI will not allow a runaway depreciation of the rupee, adding that the currency has performed better than many other emerging market currencies.
"We believe the rate hike wouldn't be a great surprise as a recent unexpected rate hike by RBI, lowering of fuel prices by the central government and certain restrictions/ban on exports are acting as measures to avoid imported inflation into the country," said Chaturmohta.
4. The monsoon: The progress of the monsoon will also be a key factor for the markets to observe as India is still highly dependent on the agri-sector and a normal monsoon will augur well for rural sectors along with consumer goods and automobile sectors.
The monsoon has arrived early this year. “South-west monsoon set in over Kerala on Sunday, May 29, against the normal date of onset of June 1," Mint reported India Meteorological Department (IMD) Director General Mrutyunjay Mohapatra saying so. Besides, India is likely to receive above-normal rainfall this monsoon season under the La Nina conditions, India Meteorological Department (IMD) said. The prospects of an above-normal monsoon have raised hopes for a bumper agri output and ebb in inflation.
"The average rainfall this monsoon season is expected to be 103 percent of the long period average," an official conveyed to the news agency PTI. This is the 4th consecutive year when the country is likely to experience a normal monsoon. Earlier, India had witnessed a normal monsoon from 2005-20008 and 2010-2013.
5. The Covid situation in China: Media reports suggest that China has eased Covid-triggered restrictions from June 1.
As per a BBC report, the Chinese city of Shanghai, the country's economic centre and a global trade hub has eased Covid curbs after a two-month lockdown.
The easing up of restrictions will help china's exports and would release a backlog of goods lying at Shanghai port and there may be some corrections in freight prices and some smoothness in the supply chain.
The month of June is expected to see the market trading with high volatility. Experts advise investors follow a cautious investment strategy in these uncertain times, buying high-quality stocks which will benefit from growth recovery.
"Leading financial, IT, cement, telecom and segments of autos appear sound investment bets," said Vijayakumar.
"We expect June to be a watch out month wherein several macro events and micro events would keep the markets interested. The markets have expectations of what is going to happen, hence if things come as expected we can see neutrality in the markets and vice-versa," said Chaturmohta.
"As far as technicals are concerned, Nifty has formed a good base around 15,800-16,000 but looking into macro headwinds strong resistance around 17,000 can be seen. So, the Nifty could trade in a broad range of 16,000-17,000," Chaturmohta said.
Gadia of CapitalVia Global Research underscored that Nifty50 has staged a sharp bounceback from the key support level of 15,700. A breakout of 16,700 may lead to a run up towards 16,900-17,000 levels on the upside in the near term, and a correction below 16,400 can drag down the Nifty to retest the important support level of 15,700.
Disclaimer: The views and recommendations made above are those of individual analysts or broking firms and not of MintGenie.
