Markets likely to play in a broad range in the coming days

The August 4-10 period under review saw markets gain further ground. They lost on Thursday, gained on Friday, had a stellar performance on Monday, trading holiday on Tuesday and ended the period flat. BSE Sensex lost on Wednesday while NSE Nifty gained, both marginal. At the end of the period under review, BSE Sensex gained 466.76 points or 0.79 per cent to close at 58,817.29 points. Nifty gained 146.60 points or 0.84 per cent to close at 17,534.75 points.

Dow Jones gained on three of the five sessions and lost on two. The bulk of the gains recorded for the period under review, all came on the opening day of the period. Dow gained 377.65 points or 1.16 per cent to close at 32,774.41 points.

Interest rates are being raised across the world with Central banks worried about inflation, particularly retail inflation led by food and energy costs. Reserve Bank of India raised repo rates by 50 basis points to 7.2 per cent. This makes the hike over the three meetings in May, June and August to 1.40 per cent. RBI has maintained its GDP forecast at 7.2 per cent and expects retail inflation at 6.7 per cent for FY22-23.

In yet another development, the Bank of England raised interest rates by 50 basis points to 1.75 per cent. This is the steepest single rise by the Bank since 1995. Incidentally, interest rates in England have risen from 0.1 per cent in December 21 to 1.75 per cent in August 22.

The way Central banks are worried about inflation and are raising interest rates, clearly shows the global concern. It is not a factor affecting one or the other country, but global. The never-ending Russia-Ukraine war which is already 165 days old is not helping matters. The good part is that grain shipment has begun from Ukraine and it would help to bring down food inflation. Further, and if nothing else the speculation about wheat or grain being available from the food belt of Ukraine and Russia would be set at rest with such movement. The GST collection for the month of July was robust at 1.49 lakh crores. This clearly sets the expected collection from GST at 18 lakh crores for the current financial year 2022-23.

While the number has been around 1.41 lakh crores in the earlier part of the financial year, this is set to rise as festive season starts in a couple of months and the impact of the rise in GST rates also starts generating higher collections. Results for the quarter April-June 2022 are almost over for the large companies, but for the midcap and Smallcap there are still five days to go. In any case, they would be over in the period under review from 11th to 17th August. This period would see a trading holiday on Monday on account of India's Independence Day. Because of a long weekend, people would choose to lighten their positions on Friday. Markets have had a smart rise over the last three weeks and have done reasonably well for themselves from the lows made in June 22. The overall rise has been smart, at times vicious where bears were badly trapped and markets gained in about seven weeks around 15.5 per cent. While some sort of consolidation is more than overdue, it may be round the corner or delayed to happen after one more upward thrust. In any case with a strong rally of about 15 per cent in about seven weeks the correction or consolidation would also be volatile and sharp.

Expect markets to play in a broad range in the coming days. This would be in the region of 59,600 on the upper side and 57,200 on the lower side on BSE Sensex. In case of Nifty, it would be 17,800 and 17,000 respectively. Use rallies to sell and sharp dips to buy in the week ahead. It would be the period where the large cap continues to dominate the markets.

For The Period Ahead

• Midcap and Smallcap cos to see results for the quarter April-June 2022

• This period would see a trading holiday on Monday on account of India's Independence Day

• GST collections is set to rise as festive season starts in a couple of months

• The way Central banks are worried about inflation and are raising interest rates, clearly shows the global concern

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)