What is your stock market view for Wednesday 19th January and do you see the sharp fall in markets on Tuesday continuing?

On Tuesday, the Nifty index fell sharply by around 195 points to a level of 18,113. There were two triggers that spooked the markets. The first was oil crossing $87/bbl in the Brent market. The other was the persistent spike in bond yields in the US markets and the Indian markets. Now US markets are trying to factor in a 50 bps rate hike in March 2022.

Nifty closed flat on Tuesday with advance decline ratio of 6:43 which is largely and clearly biased in favour of the declines. The volatility index of the VIX spiked sharply to 17.78 levels. The banks were among major gainers with Axis Bank seeing buying ahead of the expected buyout of the Citi consumer finance business. Auto stocks were under pressure.

Foreign investors sold Rs.1,255 crore of equities while domestic funds and LIC sold Rs.220 crore on Tuesday. FPIs were influenced by Brent crude prices and hawkish US bond yields. Global markets reacted negatively to oil and yield cues with the Dow 544 point lower and the NASDAQ 387 points lower. Europe was also negative but SGX is flat in early trades.

The Indian markets are likely to face pressure through the day as the spike in crude is likely to hit the inflation and fiscal deficit levels. The challenge now is that the global markets are pencilling more rate hikes in March and RBI may have to indulge in pre-emptive rate hikes in its Feb policy to avoid too much of rate divergence. Be cautious, especially on financials.