Weekly Report - June 11, 2022 - Mr. Mitul Shah - Head of Research at Reliance securities

U.S. equities closed lower for the week with S&P 500 dropped 5.1%, the Dow Jones fell 4.6%, while the Nasdaq declined 5.6%. Inflation showed price accelerated with consumer prices rising 8.6% YoY in May, highest since 1981. Consumer sentiment data came in at a record low, as inflation weighs on American households. The headline inflation, driven by rising oil and food prices, has moved substantially higher over the last few months, while core inflation has shown signs of very gradual easing. Inflation is the key determinant in the path forward for the Federal Reserve's monetary policies. As the Fed is looking to bring down fast-rising prices, the central bank is widely expected to raise interest rates by another 50 bps in next week's policy meeting, further increasing the cost of borrowing and doing business for companies. Amid these concerns over inflation's impact on the economy and Fed's next moves, the market is likely to remain volatile. The European Central Bank confirmed its intention to hike interest rates by 25 basis points at its July meeting, with a further hike expected in September, the scale of which will be determined by the medium-term inflation outlook.

On domestic front: The domestic equities snapped three-week rising trend with Sensex falling by 2.6% while Nifty fell 2.3%. Nifty Mid-Cap and Nifty-Small Cap declined by 1.6% and 2.8% respectively. Most sectoral indices for the week were in red, Nifty Consumer durable lost 3.6%, followed by Nifty Financial Services fell 3%. On positive side, Nifty Auto gained the most at 1% followed by Nifty Healthcare which was up 0.4%. The World Bank has trimmed its growth forecast for India for FY23 to 7.5%, marking a 1.2% cut from its previous forecast of 8.7%, due to rising inflation, supply chain disruptions, and geopolitical tensions. The bank now sees India's growth slowing further to 7.1% in FY24. This is 30 basis points higher than the previous forecast of 6.8%. For FY25, GDP growth has been kept at 6.5%. RBI's Monetary Policy Committee increase repo rate by 50 basis points to 4.9%. The MPC also decided unanimously to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.

The Organisation for Economic Cooperation and Development has joined the World Bank and sharply slashed the growth for India to 6.9% growth in FY23 from 8.1% estimated earlier. This is below the RBI 's estimate of a 7.2% growth. RBI is looking at another phase of coordinated action between fiscal and monetary authorities. After RBI's 50 bps hike, US Fed also expecting rate hike in next week. The MPC decided unanimously to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth. The ECB also raised its inflation expectations for the euro zone significantly and downgraded its growth forecasts. The ECB raised its inflation projections but cut its growth outlook as the conflict in Ukraine continues to weigh on confidence, consumption and investment. Investors are still attempting to gauge the market's trajectory as global markets have also remained volatile due to FED's upcoming policy decisions and the Russia-Ukraine crisis which is affecting supply chain and logistics. The Indian economy's growth moderated to 4.1% in 4QFY22, while the growth rate of real GDP for FY22 has been pegged at 8.7%.