From RBI policy to U.S. GDP data: Five factors that will impact trade this week

Indian benchmarks BSE Sensex and NSE Nifty are set to start the week on a weak note, following bearish trends in Asian markets. Shares in the Asia-Pacific region were trading mostly lower, barring China and Hong Kong, as concerns about global recession weighed on market sentiments. Regional heavyweight Japan’s Nikkei 225 dropped 2%, while South Korea’s Kospi tumbled 2.3%, and Australia’s ASX 200 shed 1.9%. The weak trends on SGX Nifty also indicated a gap-down opening for the domestic bourses, with SGX Nifty futures trading 136 points, 0.8%, lower at 17,195 levels on the Singapore Stock Exchange at 8:25 AM. Among individual stocks, engineering company Harsha Engineers will make its debut on the domestic bourses today.

On Friday, the Indian equity benchmarks ended sharply lower as slew of rate hikes by the central banks globally triggered a sell-off in the market. The interest rate hikes in the U.S., Britain, Sweden, and Switzerland, as well as weakness in domestic currency and fund outflows by foreign investors dented market sentiments. Extending fall for the third straight session, the 30-share BSE Sensex settled 1,021 points, or 1.73%, lower at 58,099, and the NSE Nifty plunged 302 points, or 1.72%, to end at 17,327. The top losers on the Sensex pack were PowerGrid Corporation, M&M, SBI, Bajaj Finserv, Bajaj Finance, NTPC, HDFC, and IndusInd Bank. On a weekly basis, the Sensex lost 742 points, or 1.26%, while the Nifty shed 203 points, or 1.16%.

Here are five factors that will impact the market this week:

RBI Policy

As the headline CPI inflation continues to remain above RBI’s upper threshold limit of 6%, the central bank is likely to raise policy rates in the policy meeting later this week. The market experts expect the RBI to raise the policy rate by another 50 bps to 5.9%. RBI Governor Shaktikanta Das-led six-member Monetary Policy Committee (MPC) is scheduled to meet during September 28-30, while the policy decision will be announced on September 30, the last date of the meeting. In the past three MPC meetings, the RBI has raised the repo rate, the interest rate at which the RBI lends to the commercial bank, by 140 bps in total since May this year, exceeding pre-pandemic levels of 5.15%.

Domestic brokerage firm ICICI Securities also expects the RBI to raise its policy rate by another 50 bps at its policy meeting at the end of this month, and a further 25 bps in December meeting to 6.15%. It also added that the cumulative impact of this year’s monetary tightening is likely to help bring headline CPI inflation back below 6% YoY in Nov’22 and beyond.

FPIs flow

Foreign investors have injected ₹8,638 crore into the Indian equities so far this month despite high volatility in the market. In the previous month, foreign portfolio investments (FPIs) had touched a record high of ₹51,200 crore, from ₹5,000 crore in July, after net fund outflows of a massive ₹2.46 lakh crore between October 2021 till June 2022. However, weekly data showed that foreign investors turned jittery and emerged as net sellers during the week ended September 23 as a rise in the US 10-year bond yield and a strong dollar index influenced FIIs to exit emerging markets.

Rupee movement

The Indian rupee breached the 81-mark against the U.S. dollar intraday on Friday amid strong demand for the greenback after the rate hike by the Federal Reserve. The rupee closed at 80.99 per dollar on Friday after hitting a record low of 81.2250 during the session before the Reserve Bank of India likely intervened to defend the currency. The domestic currency registered its worst week loss since April last year by slipping as much as 1.6% during the said period.

The fall comes in the backdrop of a record rise in the US dollar, which hit a two-decade high in overnight trade, after the U.S. central bank on Wednesday raised key interest rates by 75 basis points (bps) for the third straight time, taking the policy rate to 3-3.25%. Heightened geopolitical risk due to Russia's war in Ukraine has also dampened investors' risk appetite. Other factors that caused the rupee to fall are firm crude oil prices, the muted trend in domestic markets and the solid performance of the USD against other major currencies like the Euro, Pound, and Yen.

September F&O expiry

The monthly Futures and Options (F&O) contracts expiry may inject volatility in the market. Investors will settle their contracts before the expiry date, i.e. September 29. Futures contracts expire on the last Thursday of the expiry month.   

Global cues

On the global front, key economic data such as the U.S. GDP figures for the June quarter and Japan’s economic data will be closely eyed. The domestic market will be guided by the trend in the global equities, which witnessed sharp volatility last week after the U.S. the Federal Reserve on Wednesday hiked interest rates and took a hawkish stance to fight inflation.