Indian stock market is set to lose its steam as Market participants fear; strong rally is threatened by rising inflation, supply shortages, and China’s property sector problems which pose a threat to the global economic recovery.
Ever-increasing oil prices and inflation concerns are Indian markets volatile which led to benchmark indices trading flat on Tuesday. Sectors that contributed positively are energy, oil and gas, and metal while tech and pharma stocks dragged the market down.
Oil and gas stocks are in demand owing to gas price hikes and the increasing prices of crude. Oil prices spiked to over $81 level, reaching their highest levels in the three years following the announcement of the world’s major oil producers regarding their decision to keep a cap on crude supplies.
Experts believe that Oil and Gas stocks witnessed a strong rally amid a sharp surge in crude oil and Natural Gas prices. The strong demand and supply-side constraints together caused a rally in commodity prices where inflation has become the biggest worry for the global markets because earlier central banks were saying inflation are transitory but the current situation is looking different.
A Reuters poll of economists has projected that rising inflation will continue to cause more delays to India’s economic recovery. Based on the report, price pressures have risen due to soaring fuel prices, however, the Reserve Bank of India (RBI) is expected to maintain the current interest rates instead of increasing them until April-June 2022.
During the last big bull market of 2003-2007, inflation had triggered the intermediate correction. Experts are of the opinion that inflation might trigger a first impactful correction in the market this time around as well.
Experts have recommended that investors should diversify their portfolios with the addition of some commodity stocks in order to hedge themselves with inflation risk. It should be a tactic for the short to the medium term where oil exploration companies, power companies, chemical stocks, and sugar stocks might outperform.
The NSE Nifty 50 index was trading flat at around 17.688.6, while the S&P BSE Sensex was hovering near 59,240.3 in afternoon deals on.
Experts believe that the markets are struggling to keep above the 17700 level. This zone of 17700-17750 is a crucial for the markets to resume their current uptrend. Until that does not happen, the market will continue to be sideways, claims experts, however adding that for the downside to trigger, the market need to break 17400 on a closing basis, as that is the short-term support respected earlier this month.