Traders should avoid long positions

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Equity markets plunged sharply this week on fears of sharp economic slowdown, witnessing worst week since March 2020. Nifty/Sensex fell by 908/2943 points (~-5.6%/-5.4%) to close the week at new 52 week low of 15,294/51,360 levels. Broader market witnessed more carnage with Midcap100 /Smallcap100 down 6.2% and 7.9% respectively, during the week.

All the sectors witnessed heavy selling in the range of 3-9%. FIIs sold equities worth Rs 15,500 crore (data till Thursday) while DIIs bought Rs 11,100 crore (data till Thursday) during the week.

Global markets too slumped during the day over recessionary fear after the US Fed raised interest rates by 75 bps – the biggest increase since 1994. Further the Fed Chair Jerome Powell signalled another big move (50-75 bps hike) next month, intensifying its fight to contain rampant inflation.

It has sharply increased the interest rate target to 3.4% for 2022 and 3.8% for 2023. Besides, fresh Covid-19 curbs in China and continuing Russia-Ukraine war is keep crude oil prices elevated.

On the domestic side, markets mirrored global market fall as concerns over record-high inflation, rising interest rates and sustainability of corporate profits and economic growth continues to persist. Additionally record high USDINR and 10-year yield spiking to 4-year high further added to selling pressure.

Globally as well as domestically equity markets saw carnage in the last couple of trading sessions as central banks across the world make aggressive rate hikes leading to fear of its huge negative impact on economic growth.

As a result, Nifty has corrected by almost 18% from its peak and seems to be entering the bear phase now. Further delay in monsoon, persistent FIIs selling and rising Covid cases are some more factors adding to negative sentiments.

India VIX has inched higher and is trading around 23 levels, indicating volatility is likely to continue for now. Going ahead, we expect market to remain under pressure with increasing fears of economic slowdown. Given the hawkish commentaries from Central banks and record high inflation, rate hike cycle is likely to continue over the next couple of months and would keep investors jittery.

Traders should avoid long positions and maintain sell on rise strategy.

(The writer is Head-Retail Research at MOFSL)