Inflation worries will continue to haunt investors next week, say analysts

Foreign investors who have been bearish on Indian equities for a while, withdrawing money in heaps, accelerated their selling on Friday, wiping out some gains of the last three sessions. The buying during the week was due to a surprising decision by the Reserve Bank of India.

The market expected the RBI to moderate its policy tone, but the central bank surprised with a super dovish statement by maintaining its accommodative stance, modest inflation forecast and GDP growth of 7.8 per cent in FY23.

Eventually, the 50-share benchmark Nifty fell 0.8 per cent during the week, settling at 17, 375. Broader market indices fared worse. Nifty Midcap was down 2.33 per cent in the week, while Nifty Smallcap dropped 4.5 per cent.

Vinod Nair, Head of Research at Geojit Financial Services, said domestic equities swung between gains and losses in this week’s volatile session driven by aggressive FII selling, RBI policy meeting, US inflation data and the upcoming state elections.

“The direction of the market in the week ahead will be determined by cues from global markets, while domestic macroeconomic data and corporate earnings will continue to remain in focus in the near term,” Nair said.

One highlight of the recent selling has been how well the market has absorbed the withdrawal from foreign investors. Much of the credit goes to heavy buying by domestic investors, driven by ever higher systematic investment plan (SIP) inflows.

Net purchases by the DIIs are pumping slight optimism into the market, which is countered by heavy FII selling, pointed out analysts.

Joseph Thomas, Head of Research, Emkay Wealth Management, said after a brief spell of exuberance borne of the budget proposals, the market witnessed selling pressure emanating mainly from overseas developments.

“The US inflation and the probability of the Fed getting soon into a tightening mode, dampened the sentiment in overseas markets, especially in the US and Europe, and these movements are getting reflected in the domestic market as well,” he said.

“These concerns are going to linger on for some more time, and we may see the effects in the coming weeks, too,” Thomas added.