Markets to remain volatile on global headwinds

Indian equity markets posted negative returns for the third month in a row in February.

- ASHLEY COUTINHO

Indian equities are expected to trade with a negative bias and remain volatile in the next few months given the sticky inflation in the US, anticipation of more interest rate hikes by the Federal Reserve, geopolitical tensions and the collapse of a bank in the US.

“Volatility will continue as the interest rates in the US are expected to peak beyond 5.5%. The yields are inching up in the US and investors will be happy to get a risk-free return of 4-6% than invest in a country where the currency is depreciating 4-6% every year. The Russia-Ukraine war remains a cause for concern as well,” said UR Bhat, director, Alphaniti Fintech.

In the past three months, the Nifty 50 is down 5.8% while the Nifty Midcap 100 and Nifty Smallcap 100 are down 5.1% and 6.4%, respectively. The benchmark Nifty is still below the 18,000 levels it hit in October 2021. Mid and small-caps tend to underperform in a high-interest rate environment, which is likely to persist for some more time.

The US treasury yields breached the 4% levels a few days ago, but have retreated since then over fears of contagion in the financial sector following the collapse of Silicon Valley Bank and robust February employment data.