Why are stock markets falling? What is the market forecast for tomorrow?



oi-Sunil Fernandes


Stock markets crashed in trade today. As of this writing, the Sensex is down almost 900 points, while the Nifty is down almost 260 points. Here is the reason for the downfall of the Nifty and the Sensex.

Rising interest rates in the United States

The US Fed raised interest rates by 75 basis points or 0.75% to control inflation. US consumer price inflation hit a 4-decade high of 8.61%. Rising interest rates in the United States mean that the cost of borrowing is expected to rise, which would mean demand will slow. Obviously, when demand slows, there is a possibility of a recession looming on the horizon. This is one of the main reasons for the fall in the markets today, largely due to rising interest rates in the United States. It is feared that this will slow IT spending and as a result IT stocks in India are falling.

Either way, foreign portfolio investors sold Indian stocks aggressively and the trend is expected to continue. If interest rates across the world rise, the first casualty is emerging market equities and that is what happens. What happens in this case is that investors prefer to put their money in safe-haven government bonds, which offer a higher interest rate, than in risky assets.

For emerging market equities, foreign portfolio investors also need to realize returns, apart from the currency risk they face. With the fall of the Indian rupee in dollars, the value of their holdings has also declined.

What are the market prospects tomorrow?

It is difficult to say in which direction the stock markets would open tomorrow.

On the face of it, things look very bearish at the moment. Several stocks fell to 52-week lows, including HDFC Bank, Tech Mahindra and Infosys. The trend is unlikely to change anytime soon, with metals in particular taking a severe hammering. If you hold cash, it would be best to buy in small amounts. It is difficult to time the markets, although we believe that the markets are now correctly priced in terms of long-term averages. We expect profitability to grow at a snail’s pace in fiscal 2022-23 as margins shrink. The main reason for shrinking margins is that inflation is likely to eat away at earnings.

Overall, the markets look extremely weak at this point and it is possible that REITs will drive it down. Sometimes they just sell and get out, which is one of the main reasons for such a sharp fall in the markets.

“Nifty is expected to trade with a negative bias and can use any bounce as an opportunity to sell until it holds below the 15735 area. At the current stage, we advise to be with selective actions and one can look for a sell opportunity in Ultratech, Voltas, JSW Steel, Laurus Labs etc. Today we are seeing a long build up of stocks like Maruti, ICICI Bank, UBL, Crompton and Deepak Nitarte etc etc.” says Technical and Derivative Research, MOFSL.

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

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