The domestic markets are likely to open weak, as global stocks are yet to recover from the rate-hike announced by major central bankers. Following the US Fed's 75 basis points increase in interest rate, the Bank of England has increased its interest rate by 50 bps, the second consecutive half-point hike, and the Swiss National Bank has raised interest rates by 75 basis points.
SGX Nifty at 17,560 (715 am) indicates another 100 points drop at open. Equites in Japan, Korea, Taiwan and Australia were down between 0.4 per cent and 1.5 per cent, in early deals on Friday.
Focus on RBI
With the dollar gaining strength against almost all currencies, the Indian rupee too closed at an all-time low. Now, all eyes are on the Reserve Bank of India's meet next week. Analysts expect the central bank to increase the rate by 50 basis points.
Amid a weakening rupee and inflation worries, analysts said Indian stocks would also come under pressure going forward.
Also read: Targeting inflation, Fed hikes the rate by 75 bps
Jitendra Gohil, Head of India Equity Research, Credit Suisse Wealth Management, India, and Premal Kamdar, Equity Research Analyst, said: India equities, so far, have remained insulated from higher inflation and slower growth worries, and have materially outperformed global peers, with the MSCI India delivering total returns of 3.3 per cent on a year-to-date (YTD) basis, compared to the MSCI World and MSCI Asia ex-Japan total returns of –19.7 per cent and –21.4 per cent respectively.
"However, with interest rates rising globally and the global growth environment becoming more challenging, equity valuations could come under pressure," they added.
Similarly, BNP Paribas in a note said: India’s valuation premium to its Asian peers remain near an all-time high.
“Amid slowing global demand, lofty market valuations, a slowdown in retail flows and lack of a positive catalyst for our earnings estimates, we remain cautious on the overall market returns in the near term,” the global investment advisory firm said.
According to CLSA analysts, “While we continue to believe India remains in a sweet spot and could likely continue to command a valuation premium versus our peers due to superior fundamentals, some caution and risk management are warranted at the current levels in our view.”
Overall, we recommend investors are prudent in their equity allocation strategy. “We continue to maintain our long-held positive outlook on India mid-caps,” the analysts further said.
Assocham bracing for rate hike
Meanwhile, industry body Assocham said India Inc is bracing itself for yet another 35-50 basis points policy rate hike, which seems unavoidable in the wake of global monetary tightening to limit the impact of inflation. "The Chamber has sought a balanced and smooth transition to the new trajectory for borrowing costs," it said.
Ajit Mishra, VP - Research, Religare Broking Ltd, said: “The recent movement in the index shows indecisiveness amid the global uncertainty and it may take some time to subside. Meanwhile, we recommend focusing more on overnight risk management and limiting leveraged positions.”