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Stock Market Next Week: Ukraine War, Fed Policy, Other Key Factors to Watch Out For

Key benchmark indices regained the previous week’s losses and also broke a 4-week losing streak in a highly volatile week ended on March 11. After a weak start for the week, the market regained momentum amid tensions between Russia and Ukraine and BJP-led NDA’s victory in four out of five states gave confidence to the investors. In the last week, the BSE Sensex added 1,216.49 points (2.23 percent) to end at 55,550.3, while the Nifty50 rose 385.15 points (2.37 percent) to end at 16,630.5 levels. Nifty gained 2.4 per cent to settle at 16,630 while small-cap index outperformed with a 4 per cent gain.

Vinod Nair, head of research at Geojit Financial Services, said: “The domestic market opened weak witnessing a heavy sell-off as oil prices surged above $130 a barrel for the 1st time since July 2008, following the risk of a U.S. and European ban on Russia’s oil export. However, the mood was reversed as the results of the state election turned positive for the market and oil prices started cooling off. Indian markets witnessed increased optimism in the progress of high-level talks between Russia & Ukraine and a surge in the global markets.”

“US CPI inflation recorded a 40 year high due to high gasoline, food and housing cost, adding doubts to the global trend. Inflation levels in India & abroad are poised to rise even higher in March, though on a temporary basis, considering the impact of the Russia-Ukraine issue,” Nair added.

Next week, the market will focus on the reduction of commodity prices and diplomatic development between Russia & Ukraine. If these global trends turn positive, the performance of the Indian market will be good, or else it may get choppy. The market will also focus on inflation data to be released in India & US, and US Fed & BoE meeting is scheduled for next week.

Global Cues

The markets will have a couple of important things to react to that including the FOMC meeting and the interest rate decision slated to come in the middle of this week. The rate hike of 50 bps was seen as imminent and discounted by the markets. However, given the ongoing geopolitical tensions and fluid situations, the Fed may have to limit the rate hike to just 25 bps.

All in all, the geopolitical tensions have not died down yet. They continue to persist and it will not free the global markets from its shackle. However, in the same breath, the F&O data shows that the markets may just consolidate in a broad range and may not see major drawdowns unless there are serious incremental negative things to deal with.

Aviation Stocks in Focus

Airlines eye better days ahead as after a gap of 2 years, international commercial flights to and from India, are set to be fully operational. As a result, Indian airlines’ yield is expected to be fuelled by the international segment’s higher margins. Further, as Covid restrictions fade out, a gradual pick-up in corporate travel can catapult demand for air travel. Indicative February passenger data already suggests an improvement in air traffic.

While there are these tailwinds underway, soaring crude oil prices continue to haunt the recovery of this sector. Also, with the acquisition of Air India by Tata group and Akasa Air’s probable launch set this summer, the competitive landscape of the industry is evolving.

FPI selling

Dr. VK Vijayakumar, chief investment strategist at Geojit Financial Services, said: “FPIs continued to be sellers in March too. Up to 10th March FPIs sold equity worth Rs 41935 cr through the stock exchanges. In CY 2022, up to March 10th, FPIs have sold equity worth Rs 113690 cr. The bulk of FPI flows to India are coming from emerging market funds. FPIs fear that India would be impacted more by the commodity price hike, particularly crude spike since India is a major crude importer. FPI selling is mainly confined to financials and IT since these segments constitute the bulk of Assets under the Custody of FPIs. An important takeaway from FPI selling is that it is not impacting all segments. For instance, FPIs sold IT stocks worth Ts 10984 cr in February, but in March IT is one of the best performing sectors”

Nifty

“Technically, Nifty witnessed a smart pullback from the 16,700 level and witnessed bullish engulfing candlestick formation on the weekly chart that is a positive sign however 16,800-17,000 is a critical supply zone because it is a cluster of 20 and200-DMA. Bulls have to take Nifty above the 17000 level to come back aggressively in the game otherwise there is a risk that bears may again become active where 16,300-16,250 will be an immediate and critical support zone then 16,000-15,500 will be the next support area,” said Santosh Meena, Head of Research, Swastika Investmart Ltd.

Bank Nifty

In the current leg of the sell-off, the Bank Nifty has relatively underperformed as huge shorts were formed where the Bank Nifty future open interest rose to historical highs. As broader markets reverted, the Nifty managed to gain almost 2.5 per cent whereas the Bank Nifty ended only 0.5 per cent higher.

“Most private banks saw the addition of short positions along with call writing in ATM and OTM strikes. On the positive side, we feel there could be limited downsides as, despite a sharp surge in volatility across the globe, India VIX failed to sustain above 30 levels and ended the week near 25,” ICICI Securities mentioned in a note.

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