Indian stock benchmarks posted some gains on Thursday, but extended their gains for the second straight session, contributing to Tuesday’s rally of more than 2 percent, driven by renewed inflows of foreign capital on improved risk sentiment, as reflected in global equity trading traded modestly higher.
That even as the debate over a rise in oil-driven inflation raged rife.
The BSE Sensex index rose 156.63 points to close at 58,222.10, and the broader NSE Nifty index rose 57.50 points to 17,331.80, contributing to the rally of more than 2 percent for both benchmarks on Tuesday.
On Wednesday, the Indian markets were closed because of Dussehra.
“Weakness in European indices and SGX Nifty slipping into the red have prompted investors to lower their bullish bets. But key domestic benchmarks still ended in the green thanks to traders betting heavily on IT, metals and real estate stocks,” said Shrikant Chouhan, head of Equity Research (Retail) at Kotak Securities.
“However, concerns about global inflation and the ongoing interest rate hikes from central banks have shocked markets and kept investors captivated by concerns about a global slowdown,” he added.
Financial markets are currently being heavily influenced by changing expectations about how quickly central banks, especially the Federal Reserve, would raise interest rates.
A crucial question is whether the Fed will change course by quickly focusing on inflation and rate hikes, or taking into account slower economic growth and raising interest rates more cautiously.
As a result, Friday’s US jobs report and next week’s inflation data will be subject to extensive scrutiny.
“Investors will be looking (in Friday’s salary report) for signs of something that could prompt the Fed to do an early pivot; anything they say suggests they have no intention of doing so, but I suspect there are people who execute these pivot trades,” Stephen Gallo, European head of FX strategy at BMO Capital Markets, told Reuters.
That shift in the market’s thinking process was driven by this week’s unexpectedly mild gain of 25 basis points in Australia.
Indeed, this gave rise to optimism that other central banks might be able to scale back their tightening soon.
But just as investors seemed to find relief from the relentless rise in energy costs, especially in Europe, where customers are seeing their electricity bills double from the previous year, the price of crude oil rose for a fourth day.
Since the start of the COVID-19 epidemic, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, have agreed to the strongest cut in production, pushing stocks out of an already tight market.
That pushed the oil price to its highest level since mid-September.
“Rising commodity prices have been and will be destructive to demand,” James Athey, investment director at abrdn, told Bloomberg. “There are many vulnerabilities in this system.”
On Wednesday, US markets had ended a two-day winning streak as investors were wary of placing large-scale stock bets, although the S&P 500 closed slightly lower on the back of a strong rally in energy stocks.
If rising inflation and slower growth impact corporate profitability just before the quarter-end reporting season, equity sentiment could be negatively impacted.
“The fear of inflation may be dispelled, but then it turns into fear of growth and that becomes a problem for corporate profits,” said Emily Roland, Co-Chief Investment Strategist for John Hancock Investment Management, in an interview with Bloomberg TV.