Why The Stock Markets Are Going Down? What Is Tomorrow's Market Prediction?

The stock markets have come crashing down today in trade. As we write the Sensex has fallen nearly 900 points, while the Nifty has dropped nearly 260 points. Here is the reason for the fall in the Nifty and the Sensex.

Hike in interest rates in the US

The US Fed hiked interest rates by 75 basis points or 0.75%, to tame inflation. Consumer price inflation in the US touched a 4-decade high of 8.61%. The hike in interest rates in the US means cost of borrowings are likely to increase and this would mean that demand would slowdown. Obviously, when demand slows there is a possibility of a recession that is looming large. This is one of the big reasons for the markets to fall today, which had largely to do with US interest rates rising. There are fears that it would slowdown IT spending and hence IT stocks in India are falling.

In any case, Foreign Portfolio Investors have been selling Indian stocks aggressively and the trend is likely to continue. If interest rates across the globe move higher, the first casualty is emerging market stocks and that is what is happening. What happens in this case is that investors prefer putting money in safe haven government bonds, which offer a higher interest rate, than in risky assets.

For emerging market stocks, Foreign Portfolio Investors also have to make returns, apart from the currency risk that they face. With the Indian rupee falling in dollar terms, the value of their holdings has also shrunk.

What is the outlook for the markets tomorrow?

It's hard to say, which direction the stock markets would open tomorrow.

From the look of it, things seem very bearish at the moment. Several stocks have fallen to 52-week lows, including the likes of HDFC Bank, Tech Mahindra and Infosys. The trend is unlikely to change soon, with metals in particular coming in for severe bear hammering. If you are holding cash, the best bet would be to buy in small quantities. It is hard to time the markets, though our belief is that the markets are now fairly valued in terms of long-term averages. We believe that profitability will grow at a snails pace in FY 2022-23, given that margins would contract. The prime reason for the margin contraction is that inflation is likely to eat into profits.

Overall, the markets are looking extremely weakish at this juncture and it's possible that FPIs would take it lower. Sometimes, they just sell and get out, which is one of the prime reasons for such a sharp fall in the markets.

"Nifty is expected to trade with negative bias and can utilise any bounce as a selling opportunity till it holds below 15735 zone. At current juncture, we are advising to be with selective stocks and one can look for selling opportunity in Ultratech, Voltas, JSW Steel, Laurus Labs etc. Today, we are witnessing long built up in stocks like Maruti, ICICI Bank, UBL, Crompton and Deepak Nitarte etc. while short build-up is visible in counters like Coalindia, Navin fluorine, AuBank, Polycab, Ramcocem etc." says the Technical and Derivatives Research, MOFSL.

The market outlook for tomorrow looks bearish and even beyond that.