Trends on SGX Nifty indicate a gap-up opening for Indian indices; RBI likely to hike policy interest rates

Dalal Street suspects RBI will go for another 40-basis points rate hike.

FPJ Web DeskUpdated: Wednesday, June 08, 2022, 09:19 AM IST
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Asian stocks climbed higher. Representational image |

Trends on SGX Nifty indicate a gap-up opening for Indian stock indices.

Mohit Nigam, Head - PMS, Hem Securities for Wednesday said, the benchmark Indices are expected to open on a positive note as suggested by trends on SGX Nifty. US stock markets ended higher on Monday led by fall in bond yields. Overall sentiments still remain cautious as investors are worried about inflation and interest rates and warning by Target corp related to consumptions. Dow Jones was up by 264 points, whereas NASDAQ was up by 0.89 percent to 12711.0 levels.

Indian markets will react to the outcome of the three-day Monetary Policy Committee meeting that will be released by the RBI today. Markets are expecting 40-50 bps hike in the repo rate to counter rising inflation worries.

On the technical front 16,350 and 16600 are immediate support and resistance in Nifty 50. For Bank Nifty 34700 and 35500 are immediate support and resistance respectively, Nigam added.

Prashanth Tapse, Vice President (Research), Mehta Equities Ltd said, Domestic equities are likely to see a gap-up opening on the back of a strong upsurge in overnight US markets and early optimism in SGX Nifty. However, if the RBI's rate hike decision meets street expectations, markets may price in the hike. The Street suspects RBI will go for another 40-basis points rate hike. That said, RBI would also prefer to go slow on rate hikes in the backdrop of the government too responding to the inflation risks. The recent announcement on fuel tax cuts and reduction of import duties on edible oils will provide some comfort to the RBI. Besides the Reserve Bank of India, the European Central Bank is also set to meet next week with the outcome expected on June 9.

On June 7 (Tuesday), the benchmark indices closed in the red with Sensex down 567.98 points or 1.02 percent at 55107.34. The broader Nifty fell 153.20 points or 0.92 percent at 16,416.30.

Asian stocks up

Asia stocks rose on Wednesday, encouraged by a rally on Wall Street, but gains were kept in check by worries that aggressive central bank policy tightening will stifle global growth and raise the risks of stagflation.

Asian markets are trading on a positive side led by strong US futures and China's top cities relax COVID-19 curbs. Hang sang is trading 2 higher whereas Nikkei is trading 1% higher.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 1.15 percent, recouping most of its losses in the previous session, while Japan's Nikkei 225 index was up 1 percent. Australia's S&P/ASX 200 index rose 0.72 percent, recovering half of its slide on Tuesday after the central bank unexpectedly raised interest rates by the most in 22 years and flagged more tightening to come.

US stocks close higher

On Wall Street, the Dow Jones Industrial Average rose 0.8 percent the S&P 500 gained 0.95 percent and the Nasdaq Composite added 0.94 percent. The Reserve Bank of Australia overnight raised rates by 50 basis points - the most in 22 years - and flagged more tightening ahead as it moves to restrain inflation.

The yield on 10-year Treasury notes fell 5.3 basis points to 2.985 percent, below the key 3 percent threshold ahead of data on Friday expected to show still high US inflation. A high reading would firm up expectations that the Fed could raise rates more than the anticipated 50 basis points increase at its upcoming policy meeting next week and in July.

US Treasury Secretary Janet Yellen told senators on Tuesday that she expected inflation to remain high and the Biden administration would likely increase the 4.7 percent inflation forecast for this year in its budget proposal. Chinese stocks were supported by hopes its economy is slowly getting back on track as strict COVID-19 lockdowns are relaxed. Hong Kong's Hang Seng index rose 1.22 percent, while China's benchmark index CSI300 edged up by 0.47 percent.

Global stock markets rebound

World shares rebounded on Tuesday on the notion inflation may be peaking after Target Corp said it would offer deep discounts to clear inventory as consumers change their shopping habits, while Treasury yields fell after a surprise rate hike in Australia.

In Europe, benchmark 10-year German bund yields also dipped 1.6 basis points but held near Monday's highs ahead of the ECB meeting on Thursday. They last traded at 1.303 percent. British Prime Minister Boris Johnson survived a no-confidence vote among his Conservative Party's lawmakers on Monday, but the thin margin of victory spurred talk of a move to replace him, hitting sterling and gilts.

World Bank cuts India's economic growth forecast to 7.5% for FY23

The World Bank on Tuesday cut India's economic growth forecast for the current fiscal to 7.5 per cent as rising inflation, supply chain disruptions and geopolitical tensions taper recovery.

This is the second time that the World Bank has revised its GDP growth forecast for India in the current fiscal 2022-23 (April 2022 to March 2023). In April, it had trimmed the forecast from 8.7 per cent to 8 per cent and now it is projected at 7.5 per cent.

Crude prices up

Oil prices edged up on Wednesday ahead of data on US oil inventories, with crude futures supported by tight supplies and recovering fuel demand as China's top cities relax COVID-19 curbs.

Gold, silver to remain volatile

On Tuesday, gold and silver prices settled on a positive note in the international markets. Both precious metals were up by around 0.40 percent, while in the domestic market the bullions were flat to positive. While gold August futures contract settled at Rs 50,968 per 10 grams with a gain of 0.19 percent, silver July futures contract settled at Rs 62,243 per kilogram with a loss of 0.09 percent.

The dollar index and the U.S. bond yields cooled off on Tuesday and supported both precious metals. The Royal Bank of Australia surprisingly raised interest rates by 50 basis points and the ECB is also having their policy meet on Thursday. Market is expecting a detailed monetary tightening plan from the ECB in this meeting and possibility of interest rate hikes. Despite global central banks raising interest rates both precious metals gained in the international markets. Ongoing Russia-Ukraine crisis and higher global energy prices are also supporting gold and silver prices. Global equity markets are also struggling and supporting safe-haven buying in gold and silver.

Rahul Kalantri, VP Commodities, Mehta Equities Ltd, "We expect gold and silver to remain volatile in today’s session. Gold has support at $1842-1834, while resistance is at $1861-1870. Silver has support at $21.95-21.65, while resistance is at $22.32-22.55. In INR terms gold has support at Rs50,720–50,585, while resistance is at Rs51,160–51,240. Silver has support at Rs 61,650- 61,100 while resistance is at Rs 62,550–62,920".

USDINR

The dollar index showed profit taking at higher levels in a highly volatile session on Tuesday and settled on a slightly weaker note at 102.343 with a loss of 0.07 percent. The USD-INR 28 Junefutures contract settled on a positive note at 77.95 with a gain of 0.20 percent. The dollar index erased its earlier session gains on expectations inflation may have peaked but the US dollar hit fresh 20 year highs against the Japanese yen. The dollar index also showed profit taking after the Royal Bank of Australia raised key interest rates by 50 basis points. However, the ongoing Russia-Ukraine crisis and fear of slower global growth are supporting safe haven buying in the US dollar.

Rahul Kalantri, VP Commodities, Mehta Equities Ltd, "We expect the dollar index to remain volatile ahead of the ECB policy meeting and the US CPI data and continue to hold its support level of 101.55 on a closing basis. On the other hand, the rupee showed weakness against the U.S. dollar. We expect the rupee to remain volatile in today’s session ahead of the RBI monetary policy and looking at the technical set-up, if a pair starts sustaining above 78.0500, it could show further strength in upcoming sessions".

(With inputs from Reuters, Agencies)

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