Fall in liquidity due to change in easy money policy a bigger risk than delta variant'
FOMC meeting next week will be highly watched by global market. In-line with ECB, FOMC is expected to maintain the accommodative policy.
Indian market started weak shadowing the global sell-off. World market was varied by high inflation and rising Covid-19 cases. Slackening economic growth in the US, led to reports of likely downgrade in GDP growth supporting dump trades. Sharp fall in crude & US bond yields reflected the rising concerns over fall in future growth. Central Banks meetings, ECB this week & FOMC next week also added vulnerability, assuming uncertainties over a possible change in easy money policy due to all-time high inflations.
Domestically, banks & auto sectors led the downtrend as initial quarterly results suggested weakness in asset quality & volume growth due to second wave impact. Western markets' attempted to recover from the sell-off on Tuesday, which provided some comfort to domestic market but selling continued due to trading holiday on Wednesday. FIIs continued as key sellers while MFs & retail inflows investors supported the market.
Post the initial sell-off, global markets continued to hold on its gains owing to solid earnings reports and turned its focus on the European Central Bank's policy announcement, stated on Thursday, which was steady as expected and tweaked its inflation guidance in-line with the rising prices. It provided a hope that Fed will continue its supportive policy in the upcoming meet despite rising inflationary pressure. It helped the market to not wary about policy change.
After the Indian market correction on Monday & Tuesday, it opened with a strong foothold on Thursday as global market sell-off completely reverted. High F&O activities did help the market to improve its momentum.