The Indian equity market ended in the red on May 2, extending the losses into the second consecutive session as investors remained cautious ahead of the US Fed policy outcome on May 4.
Sensex closed 85 points, or 0.15 percent, lower at 56,975.99 while the Nifty50 closed 33 points, or 0.20 percent, lower at 17,069.10.
Mid and smallcaps underperformed as the BSE Midcap index closed 0.47 percent lower while the smallcap index fell 0.87 percent. Among the sectors, BSE Consumer Durables fell 2.37 percent to end as the top loser. Telecom, IT, auto, capital goods and teck indices fell over a percent each.
In the Sensex index, the stocks of IndusInd Bank (up 4.17 percent), NTPC (up 2.54 percent) and Power Grid (up 2.20 percent) emerged as the top gainers while Titan (down 2.95 percent), Wipro (down 2.74 percent) and Tech Mahindra (down 1.87 percent) ended as the top laggards.
The market seems to have shifted focus to the US Fed outcome. The US Fed meet will begin on May 3 and conclude on May 4 and the Fed is expected to aggressively raise rates by 50 basis points as inflation is soaring.
The US inflation rose to a new 40-year high of 6.6 percent in March. As reported by Reuters, "At more than triple the Fed's target, hot inflation is why the central bank is widely expected to ramp up the pace of rate hikes with a half-point increase at each of its next three meetings and continue raising rates through the end of the year."
Fed's rate hike is seen as negative for the stock markets as it impacts the flow of foreign funds. As Indian equities are already witnessing a sustained outflow of foreign funds, aggressive rate hikes would mean the rate of outflow will increase.
Data from NSDL showed Foreign portfolio investors (FPIs) sold Indian equities worth ₹17,144 crore in April. Cumulatively, FPIs sold ₹22,688 crore in the Indian financial market in debt and equity. With this, FPIs remained net sellers for the seventh consecutive month since October 2021, withdrawing ₹1.65 lakh crore from equities.
But the hawkish Fed is not the only concern the market is dealing with now. The ongoing Ukraine war, inflation and uninspiring earnings are also weighing on investor sentiment. Economic indicators are also giving mixed signals but the fresh GST collection numbers came as a relief.
The gross GST collection in April 2022 hit an all-time high and was ₹25,000 crore more than the previous month’s ₹1,42,095 crore, the next highest collection.
India’s manufacturing activity picked up marginally in April from a joint six-month low in the previous month. However, India's core sector growth slowed to 4.3 percent in March while it had grown 6 percent in February.
"The recent hawkish turn by Fed has made investors extra cautious ahead of the upcoming Fed meeting triggering high volatility in the market. The rising dollar index, FII selling spree and elevated commodity prices further hammered the risk sentiment. On the other hand, domestic numbers like GST collection, auto sales numbers and Manufacturing PMI for the month of April gave a sense of an improving economic outlook," Vinod Nair, Head of Research at Geojit Financial Services, observed.
"Early losses were mostly in reaction to the slump seen on Wall Street on Friday, but the market recovered most of its early losses as investors covered some shorts ahead of the trading holiday on Tuesday. The robust GST collections for April also calmed the nerves of investors, who are already facing the brunt of the ongoing war and volatile oil prices. Investors are also keenly awaiting the outcome of the US Fed's monetary policy announcement scheduled later this week," Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities, pointed out.
Ajit Mishra, VP - Research, Religare Broking underscored the market managed to rebound amid the weak global setup which shows that bulls are not in the mood to surrender easily.
However, Mishra added that the real test would be to handle the volatility post the US Fed meeting. Meanwhile, the domestic factors like earnings and macroeconomic data would further add to the choppiness.
"It’s prudent to limit positions and continue with a stock-specific trading approach," said Mishra.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies and not of MintGenie.