Summary of this article
US Fed policy decision will guide Indian equity sentiment.
BRICS summit trade pacts may trigger Indian market moves.
Truncated trading week and inflation data will elevate volatility.
On September 11, the domestic market closed in the red as the Nifty fell to 23,398.10, declining 79.70 points or 0.34 per cent. On the other hand, the 30-share Sensex closed at 74,781.76, down by 120.83 points or 0.16 per cent. Notably, the domestic markets have closed in the red for five straight weeks.
However, following five weeks of decline, the equity market is set for an eventful week starting September 14. D-street investors are bracing themselves for potentially heightened volatility as several key factors are expected to impact the stock market. In the week ahead, domestic macroeconomic data and global central bank decisions are set to affect investor sentiment. Additionally volatility is expected to remain high on account of a truncated trading week due to a market holiday.
Truncated Trading Week Dynamics
Both the Bombay Stock Exchange and the National Stock Exchange will remain closed for trading on Monday, September 14, in observance of the Ganesh Chaturthi festival. Thus the five day trading cycle will get compressed into a four day window from Tuesday through Friday.
Typically, truncated trading weeks tend to amplify market volatility as traders and institutional investors have to compress their portfolio adjustments and hedging strategies into fewer sessions. Additionally the impact of significant global market developments which occur on Monday will lead to a gap up or gap down opening when the Indian markets resume operations on Tuesday morning.
BRICS Summit Spillover Effect
The BRICS Summit, hosted in New Delhi over the weekend of September 12 and 13, is likely to act as a geopolitical catalyst before markets open on September 15. D-Street will be closely analysing announcements of any joint declarations on trade, energy security, and supply chain resilience.
A key theme in focus for domestic investors is the potential inking of new trade agreements or infrastructure financing mechanisms through the New Development Bank. Additionally, any bilateral progress made on the sidelines regarding the India and China trade deficit could also impact domestic manufacturing, capital goods, and logistics stocks.
The US Federal Reserve Policy Decision
The United States Federal Open Market Committee (FOMC) meeting is set to take place this week. The US central bank will convene on September 15 and September 16 to determine its monetary policy stance.
The interest rate decision announced by the FOMC and the accompanying economic projections is expected to have a ripple effect on the Indian stock market. If the Federal Reserve adopts a hawkish tone and signals interest rates will remain higher for an extended duration, it can trigger a capital flight from riskier emerging markets like India back to US treasury bonds. This in turn results in selling pressure on Indian equities. On the other hand, dovish commentary from the US Fed can hint at monetary easing which can potentially turn investor sentiment positive around equity changes.
Domestic Inflation Data
On the domestic front, the market will digest the latest inflation figures. The release of the Consumer Price Index and the Wholesale Price Index data for the month of August on September 14, will provide signals about the current cost of living and manufacturing expenses.
These metrics help the Reserve Bank of India (RBI) when determining its own interest rate trajectory. If the retail inflation numbers print is higher than market consensus, it can potentially dampen lingering hopes for domestic rate cuts. Additionally, high interest rates can increase the debt servicing burden on Indian corporations which have considerable leverage, suppressing their profit margins.
Corporate Advance Tax Collections
The deadline for the second installment of corporate advance tax payments falls on September 15. When major corporations pay corporate tax to the government, it drains systemic liquidity from the banking sector. Corporate tax figures also act as an indicator of corporate financial health. Higher than expected advance tax deposits can indicate that companies are projecting quarterly earnings, which injects optimism into the stock market. On the other hand, sluggish tax collections could make investors apprehensive about impending slowdown in profitability.
