Markets Next Week: Eyes On The US Fed, Russia-Ukraine War

Markets managed to notch-up gains this week, for the first time in four weeks. A rebound in global markets and consistent buying from domestic institutions helped sentiments. All eyes would on the US Fed action on March 16. While the markets are expecting a 25 basis hikes in the Fed rate, anything higher than that will come as surprise. A timeline for shrinking the balance sheet would also be eagerly watched. This week we saw the ECB planning to unwind its stimulus earlier than anticipated, which came as a surprise.

"Sentiments turned negative globally as cease-fire talks between Russia and Ukraine failed to make any progress, while US inflation accelerated to a 40-year high in Feb'22 to 7.9%. Thus, suggesting the FED could move more aggressively to curb the inflation. Investors also weighed the European Central Bank's decision to unwind stimulus measures sooner than expected," says Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services Ltd.

Domestic markets reacted positively to the assembly election outcome which favoured the ruling BJP led NDA in 4 out of 5 states. BJP's comfortable victory would mean continued political stability, policy and reform momentum as well as fading of any risks associated with political uncertainty in an already volatile and uncertain market context.

"With election behind, the equity markets will move on to more important aspects in the near term - the Russia-Ukraine geopolitical conflict, the US Fed rate hikes, elevated crude oil prices and the RBI's response to rising inflationary pressures in the economy. We expect markets to stay volatile until the existing headwinds subside. Valuations though at a P/E ~19x FY23E EPS for Nifty look relatively more reasonable," Khemka said.

However, some analysts believe that the 2022-23 earnings would need to be cut, given that inflation would eat into corporate profitability. Overall, we at goodreturns expect more stability next week, than the previous two weeks. However, a lot would depend on the US Fed and if there are no surprises. Hawkish comments from the US fed on inflation is largely anticipated.

As far as the Russia-Ukraine was is concerned, it is probably not going to get any worse than it is. One has to only now wait to see what would be the final outcome. Crude oil has already probably flared-up and sanctions have been already imposed.

We suggest that investors buy the dips and accumulate small quantities of stock on declines. However, it is advisable to avoid buying into large quantities t this juncture.