Indian equities likely to remain volatile after US Fed chair's speech

Indian equities market is likely to remain volatile on Monday and volatility may increase going ahead after the US Federal Reserve statements post the Jakson Hole symposium indicated the central bank's strong commitment towards controlling inflation over growth.

"US Fed statements post the Jakson Hole symposium indicated the central bank's strong commitment towards controlling inflation over growth. In cues for major central banks across the world. Fed Chair Jerome Powell said that interest rates in US are likely to remain higher and for longer period. This is likely to be negative for equity markets. The impact was clearly visible in US markets which fell more than 3 per cent. Indian markets are also likely to react negatively on Monday with increasing volatility over the next few days." said Siddhartha Khemka, Head, Retail Research, Motilal Oswal Financial Services Ltd.

On Friday, Fed chair Jerome Powell signaled the US central bank is likely to keep hiking interest rates and keep them elevated to tame inflation.

"Restoring price stability will likely require maintaining a restrictive policy stance for some time," Powell said

"The historical record cautions strongly against prematurely loosening policy. Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labour market conditions.

"While higher interest rates, slower growth, and softer labour market conditions will bring down inflation, they will also bring some pain to households and businesses," Powell added.

The US market tumbled after the Powell's speech. The major averages declined for a second week. The Dow tumbled 4.2 per cent. The S&P 500 and Nasdaq Composite lost roughly 4 per cent and 4.4 per cent, respectively.

"Fed Chairman at the Jackson Hole symposium mentioned that higher inflation is likely to bring some pain to household and businesses. He added that US economy would continue to show strong underlying momentum and also pledged that the central bank will 'use our tools forcefully' to attack inflation. On interest rates the Fed will be dependent on the incoming economic data. Inflation continues to be the major concern for the Fed but in the process it could slower growth going ahead. US equities fell sharply while US dollar and 10 year yields rose in expectation of further tightening announcement by the Fed," said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services.

Domestically, Indian equities rose sharply with Sensex rising 1.22 per cent and Nifty rising 1.26 per cent since start of this month. On Friday, Sensex ended at 58,833.87 and Nifty ended 17,558.90.

Going forward, market participants believe the coming week is a holiday-shortened one and it marks the beginning of the new month also so participants will be eyeing important data like auto sales numbers.

Nifty is taking a breather after a phenomenal surge and currently hovering in a narrow range of 17,300-17,800.

"It would be critical to see how our markets react to the US fall on Monday as we were showing tremendous resilience so far. A decisive breach of 17,300 would push the bulls on the back foot and Nifty might retrace towards the 16,900 zone else the consolidation would continue. In case of decline, profit taking could be widespread however the IT pack looks weakest amongst all. We reiterate our view of focusing more on risk management during this corrective phase and suggest continuing with stock-specific trading approach until the Nifty resume the trend," said Ajit Mishra, VP, Research, Religare Broking Ltd.

--IANS

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