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Fed action seen imminent, Street on edge – Economic Times

Mumbai: The stock market is on the edge after posting the largest weekly decline in eight weeks ahead of the US Federal Reserve’s rate setting meeting on Wednesday. In the holiday-shortened week ahead, investors will remain wary as US technology giants – Apple and Microsoft- are set to report earnings in the midst of the adverse sentiment that has gripped new-age businesses on Wall Street and elsewhere. Higher oil prices could also keep the mood cautious.

The domestic equity market will be shut on Wednesday on account of Republic Day.

Last week, the Sensex and Nifty declined 3.5% each – their highest weekly loss since the week ended November 26 – on worries about the rise in US bond yields amid expectations of a sooner-than-expected increase in interest rates by the Federal Reserve. The two-day meeting of the American central bank ending on Wednesday is expected to give clues on how soon and how much the Fed would raise rates in 2022.

“We are seeing withdrawal symptoms (withdrawal of monetary policy easing) in the form of yields going up,” said A Balasubramanian, CEO, Aditya Birla Sun Life AMC. “The current market correction is on high valuation fear and yields going up. Potential risk in rising inflation may also have an impact on policy rates. Though policy rates will not be hiked in a hurry and aggressively but investors are preparing for it and yields are going up.”

Risk-aversion in global markets on account of rising US bond yields has impacted equities severely with American technology giants bearing the biggest brunt. Last week, the tech-laden Nasdaq slumped 7.6%, its worst performance since March 2020, while the S&P 500 dropped 5.7%. A lower-than-expected guidance from Netflix on subscriber additions last week spooked investors. Now, the focus is on Microsoft and Apple, which are scheduled to announce results this week. If earnings of these companies disappoint, the market could punish them severely, which could weigh on the US and global markets too, said analysts.

Analysts said the Indian market is also seeing pain due to rising oil prices. On Wednesday, Brent crude rose to $89.17 – its highest since October 2014. Analysts said the rebound in the global economy and a tight demand-supply outlook could push up prices further. Investors are worried further rise in oil prices could put further upward pressure on inflation.

“Inflationary pressure, monetary policy tightening, rising bond yields, higher crude oil prices are some key challenges for the global markets,” said Shrikant Chouhan, head of equity research (retail) at Kotak Securities. “In addition to global factors, the domestic markets would track the third quarter results, management commentary, and Union Budget.”

Axis Bank, Larsen & Toubro, Marico, Cipla, Dr Reddy’s Laboratories and Maruti Suzuki are among the companies declaring quarterly earnings this week. The Union Budget is scheduled on February 1.

The volatility index, which measures market’s perception of fear in the near term, jumped 6% to 18.9 on Friday. The Sensex fell 427.44 points or 0.72% on Friday to end at 59,037.18 and the Nifty dropped 139.85 points or 0.8% to close at 17,617.15.