After three straight weeks of gains, the Nifty closed in the red for the week. What’s Next?
How does the rising dollar impact you?
The rising interest rate has resulted in increasing benchmark bond yields. Recently, the rupee hit an all-time low against the dollar, and an unabated selling by the FPI/Fll continues. Along with other ongoing concerns, there is a real risk to overall stock market performance because of the rising dollar. How does the rising dollar impact you?
Why is the US dollar rising?
The dollar is rising mainly because of higher demand for the dollar –
-Soaring commodity and oil prices.
-FII/FPI selling and moving to dollar-denoted assets.
-Higher inflation in US and rising treasury yields.
How does the rising dollar impact me?
- The Imports would be costlier because of the rising dollar, which would keep the inflation higher. And because of high inflation, interest rates need to rise.
- To match the sovereign treasury yields, the RBI needs to increase the interest rates.
- There is a loss to the foreign investors because of a depreciating rupee or rising dollar. To make up for the falling rupee, the interest rate needs to raise further.
- Further, the rising dollar and costlier imports would affect the current account deficit.
- A higher interest rate and significant current account deficit would affect the GDP growth.
- Similarly, because of the rising dollar, there would also be an increase in the foreign education, travel, medical treatment, etc. cost.
- In short, the rising dollar affects GDP growth, and GDP growth affects stock market returns.
Can the Central Bank do anything to check the rising dollar?
Yes, and no.
The central banks worldwide do market intervention to keep the volatility in currency prices minimum. This action is effective for a brief period. There are limitations in terms of how much market intervention (selling or buying) a central bank can do because of limited foreign exchange reserves.
The rising dollar affects the prices, the soaring prices result in higher inflation, and to tame inflation, the central bank needs to raise interest rates.
Because of rising inflation in the US, the US Fed would raise interest rates, and to match the sovereign bond yields, the central banks in other countries also need to raise interest rates.
Similarly, because of a depreciating rupee (rising dollar), the foreign investor needs to be compensated through a rise in interest rates.
The above rising dollar-higher inflation-rising interest rate loop might continue for some more time.
Market – Weekly Update
After three straight weeks of gains, the Nifty closed in the red for the week at 16202. Down about 383 points or 2.31 per cent during the week. Similarly, the Bank Nifty was down by 791 points or 2.24 per cent during the week.
The broader market followed the benchmarks indices. The Nifty Midcap 50 was down 1.64 per cent during the week. Meanwhile, Small cap 50 was down 2.81 per cent during the week.
Structurally, nothing major changed during the week. The weekly price action is confirmation of the below concerns. The concerns of the previous weeks remain as is, which are:
- Geopolitical- Russia Ukraine War
- Rising Inflation
- US Fed and RBI tightening policy
- Rising Interest Rates
- FII selling from Emerging Markets
- Rising US Dollar <-
We have added the rising US dollar to the above concerns, which we are tracking on a weekly basis.
Nifty Market breadth and Volatility
The market breadth was negative during the week, the weekly advance-declined ratio was 0.64. Meanwhile, the volatility index India Vix closed marginally lower at 19.58.
Top Gainers of the Week
The other notable gainers of the week were SBI Life up +1.23 percent, Eicher Motors up + 1.04 percent, Coal India up +1.02 percent, and BPCL up + 0.91 percent.
Top Losers of the Week
The other notable losers of the week were UPL down -4.68 percent, HDFC down -4.68 percent, L&T down -4.06 percent, Tata Steel down -4.03 percent, and HUL down -4.01 percent.
Nifty Sectors and Broader Indices
NIFTY SECTORS – WEEKLY ACTION
Oil and Gas +0.36%
As noted in an earlier blog, the risks of missing fiscal deficit target, high inflation and downgrade to GDP growth estimates are causing nervousness in the market. The inflation might stay sturdy a little longer than expected.
The Nifty has made triple tops in the last eight months and failed to surpass the previous highs. In the short term, it looks like the market is in a trading range of 15800 to 16800.
Nifty Weekly Pivots
As per the above pivots data, 16000-16500 is the Nifty 50 trading range for the next week. The support is around the 16000 level, and then around 15800 level. If the market breaks the 16000 level, such a break can drag the Nifty down to 15800 or below levels in the short term. And on the upside, we might again see selling around 16500 level.
View the Pivot Calculator.
Read our earlier blogs here.
Why the Retail Investors losing interest in the stock market?
“Invest in Peace, Bro,”
China Bull In Nifty Shop
The Nifty closing price is now below the 20-day moving average, it is also below the 50-day moving average and the 200-day moving average price. And the 50-day moving average price is below the 200-day moving average price.
Referring to the above chart, the Nifty has been in a box of 15800-16800 levels for over a month now. For the upcoming week, the bias is negative, and the chances of breaking down from the box are higher.
Retail investor enthusiasm, mutual fund SIP inflows, and DII buying have supported the market up till now. The moot question is, how long before the retail investors’ passion dries out? Though, in hindsight, everything looks a no-brainer.
This article is only for educational purposes and is not an investment advice. Please consult with your investment advisor before investing.