Top triggers likely to set market direction in second-half of 2022

Halfway into 2022, investors continue to be on the edge as the outlook for the remaining months stays unclear.

While analysts say that most of the damage has been done, with little room for further downside, key factors like interest rates, inflation and corporate earnings could guide the markets over the next six months.

Speaking to Business Standard, Narendra Solanki, Head Fundamental Research, Anand Rathi says, inflation, growth, interest rates to be keenly tracked. Commodity inflation to dent earnings in Q1FY23 and topline growth remains encouraging. Margins to revert to normal levels once cost woes abate, he says. 

Growing fears of recession have dealt a blow to US equities, the ripple effects of which have been felt by emerging markets, including India.

The MSCI emerging market index has dropped around 17% this year, which is its worst fall since 1998, as per Bloomberg. 

Besides, US Fed Chair Jerome Powell has admitted that the Fed’s expeditious move to raise rates could bring an economic slowdown.

According to Morgan Stanley, though a developed market recession would undoubtedly weigh on Asia’s growth outlook, the downturn could be relatively shallow for Asia. 

Back home, the trend of foreign investors that continue to be on a withdrawal spree from Indian equities will be another important trigger. Though, analysts do not expect FIIs to remain bearish on India for too long.

Rohit Khatri, Fundamental Analyst, Religare Broking, says valuation discomfort, rising rates made FIIs net sellers. FIIs remain invested in India’s long-term growth, he says adding that expect FII flows to return to India as and when interest rates stabilise.

The markets may continue to exhibit volatility today on somber sentiment ahead of the weekend. Besides, investors will closely monitor the manufacturing PMI for June and the preliminary trade data.