Volatility to continue; markets likely to remain range-bound

NEW DELHI : Stocks managed to eke out small gains in the week gone by, but volatility is expected to return as investors brace for more rate hikes and recession fears stalk developed.

Declining commodity prices and fewer covid restrictions in China supported market sentiments last week, even as weak data from the US and India’s new taxes on auto fuels and domestic crude oil weighed on them. The Nifty and Sensex ended the week just 0.34% higher than the previous close.

“Indian equity indices carried the momentum of the previous week to start off on a strong note,” said Deepak Jasani, head of research, HDFC Securities Ltd. However, markets remained volatile on global growth concerns, persistent selling by foreign investors, and the imposition of taxes on crude products, according to Jasani.

Volatility is likely to continue and markets may remain range-bound, experts said. Rate hikes by the US Federal Reserve are around the corner and bond yields in the country continue to rise, prompting continued selling by foreign investors and putting pressure on the rupee.

Markets may remain volatile in the near term, with a rate hike by the US Fed around the corner, said Aishvarya Dadheech, fund manager, Ambit Asset Management. The Fed is expected to raise rates by 75 basis points each in July and August, and the Reserve Bank of India is expected to follow with its own rate hike at its next policy meeting.

Recession fears may also limit upside, analysts said. In the near term, markets will keenly watch the trajectory of inflation and expected interest rate increases by the Fed and the European Central Bank, apart from signs of likely recession in the US and Europe, said Nishit Master, portfolio manager, Axis Securities.

The market will also take cues from the sharp decline in commodities prices globally, Dadheech said. The decline in commodity prices is on account of expected recessionary risk in the developed markets. Some market participants expect inflation to peak soon, keeping the market in a range-bound mode in the coming months, Dadheech said.

Global headwinds remain the key overhang, said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services Ltd. Khemka said he expects the market to remain subdued, with downward pressure. US manufacturing activity continued to slow in June, while construction spending unexpectedly dipped in May, analysts said.

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