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After election result boost, Ukraine, inflation worries to keep Sensex volatile

Ukraine and inflation concerns were back to the fore for global equities after after a brief interval. India’s benchmark index Sensex was down 0.4% in pre-open trade as Ukraine-fuelled selling sank Asian markets after the previous day’s bounce. Inflation fears were also roiled equities with data showing US inflation at a 40-year high adding pressure on the Federal Reserve to ramp up interest rates.

The failure of high-level talks between Russia and Ukraine to de-escalate the war also helped torpedo a brief rebound in equities.

“Volatility is likely to ride high as Russia-Ukraine peace talks conclude with no progress on ceasefire. We believe, even IT and software stocks are likely to come under pressure as overnight the benchmark 10-year U.S Treasury note yields rose to 2% following the inflation data release,” said Prashanth Tapse, Vice President (Research), Mehta Equities Ltd.

Driven mainly by BJP’s strong performance in state polls, the 30-share BSE benchmark Sensex on Thursday soared 817.06 points or 1.50 per cent to close at 55,464.

Analysts also say that caution is also advised as Fed holds meeting next week.

“The Street now believes that the Russia-Ukraine conflict will lead to even higher inflation prints in the coming months. Nifty’s biggest supports are placed at 16321 mark and then at 15921 mark. Below Nifty 15921 zone, expect waterfall of selling which could take Nifty down to 14251 mark with inter-month perspective. From a chartist standpoint, the technical landscape will improve considerably only if Nifty closes above its 200 DMA at 16959 mark,” he added.

Mohit Nigam, Head – PMS, Hem Securities, said: “The global stock market tumbled yesterday as key peace talks between Russia and Ukraine came to a halt, exacerbated by a worsening growth outlook. The US stock market also fell, with technology stocks leading the way, after statistics revealed that consumer prices rose in February, bolstering the case for the Federal Reserve to raise interest rates later this month. As a result of the BJP’s triumph, the market gained confidence. However, with the ECB and US Federal Reserve meetings coming up in the coming days, caution is advised.”

“On the technical front, immediate support and resistance in the Nifty are 16,200 and 16,800. For the Bank Nifty, immediate support and resistance are at 33,500 and 35,500,” he added.

Domestic brokerage Motilal Oswal in a note said that as the results of state elections “are by and large in-line with expectations and exit poll predictions, the equity markets will move on to more important aspects in the near term – the Russia-Ukraine geopolitical conflict, the US Fed rate hikes, elevated crude oil prices and the RBI’s response to rising inflationary pressures in the economy. We expect markets to stay volatile until the existing headwinds subside.”

However, “valuations though at a P/E ~19x FY23E EPS for Nifty look relatively more reasonable,” the brokerage added.

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