Indian stocks in green with focus on US monetary policy outcome

New Delhi [India], March 21 (ANI): Benchmark stocks in India closed Tuesday’s trade in the green tracking positive overnight gains in the US, which rose on hopes of a relatively smaller interest rate hike in the ongoing two-day US monetary policy review meeting amidst the banking crisis.

The US monetary policy review meeting is scheduled for March 21-22.
Sensex and Nifty settled 0.7-0.8 per cent higher than the previous session, with most of the Nifty sectoral indices on the rise.

“Investors hoped for less-aggressive moves by the U.S. Federal Reserve at its policy meeting this week. Although it’s probably too early to call an end to the banking turmoil, given difficult conditions still exist for the smaller U.S. banks…,” said Deepak Jasani, Head of Retail Research, HDFC Securities.

Global stocks have been volatile for over a week after the Silicon Valley Bank-led crisis in the US banking system and contagion effect on some others in a matter of just a week.

Prominent global lender in the world of technology startups, the Silicon Valley Bank collapsed on March 10 after a run on the bank, forcing the US federal government to step in. Regulators shut down the tech lender and put it under the control of the US Federal Deposit Insurance Corporation (FDIC).

The FDIC is acting as a receiver, which typically means it will liquidate the bank’s assets to pay back its customers, including depositors and creditors.

“Markets edged higher and gained over half a percent, taking a breather after the recent slide. Firm global cues led to an upbeat start however mixed trends among the index heavyweights capped the momentum,” said Ajit Mishra, VP – Technical Research, Religare Broking.

“We expect the recovery to strengthen further however upside still seems capped citing multiple hurdles till 17,400 levels in Nifty. Besides, caution ahead of the outcome of the US Fed meet would keep the volatility higher,” Mishra said.

For fresh cues, market participants will keenly watch out for the next US Federal Reserve monetary policy outcome and forward-looking guidance, if any.

Consumer inflation in the US moderated in February to 6.0 per cent from 6.4 per cent the previous month, but the numbers are still way above the 2 per cent target. It was at 6.5 per cent in December, and 7.1 per cent the month before.

The US central bank’s policy rate is now in a target range of 4.50-4.75 per cent, the highest in 15 years, and notably, it was near zero in the early part of 2022. Raising interest rates typically help in cooling demand in the economy and thus helps in managing inflation.

Despite inflation moderating in recent months, the process of getting it back down to 2 per cent is still a long way away and the path is likely to be bumpy, said US Federal Reserve Chair Jerome Powell earlier this month.

Back home in India too, retail inflation is above RBI’s target range.

According to Monthly Economic Review February 2023 of the Department of Economic Affairs, the consistent moderation in wholesale inflation in India, which fell to a 25-month low in February, is expected to get reflected in the retail inflation soon.

Falling international commodity prices and government measures have aided in easing inflationary pressures in February, the report said on Monday.

Notably, wholesale inflation in India based on the Wholesale Price Index continued to moderate and was at 3.85 per cent (provisional) in February 2023, against the previous month’s 4.73 per cent. Overall wholesale inflation was at 8.39 in October and has been falling since then. Notably, the wholesale price index (WPI)-based inflation had been in double digits for 18 months in a row till September.

Retail inflation in India fell marginally but remained above RBI’s 6 per cent upper tolerance band for the second straight month in February 2023, with the Consumer Price Index (CPI) pegged at 6.44 per cent. In January, the retail inflation was 6.52 per cent.

India’s retail inflation was above RBI’s 6 per cent target for three consecutive quarters and had managed to fall back to the RBI’s comfort zone only in November 2022.

Under the flexible inflation targeting framework, the RBI is deemed to have failed in managing price rises if the CPI-based inflation is outside the 2-6 per cent range for three quarters in a row.

Since May last year, the RBI has increased the short-term lending rate by 250 basis points, including the latest 25 basis points (bps) hike, to tame inflation.

Further, quoting forecasts of various international agencies, the monthly review said that inflation in India will moderate in 2023-24 compared to 2022-23, and is likely to remain in the range of 5.0-6.0 per cent, “with risks evenly balanced”.