Stock market may see profit booking

Mumbai: The Indian stock market may open weak on Monday following the more than 3 per cent fall in the US market on Friday after US Federal Reserve chief Jerome Powell indicated sustained interest rate hikes to control inflation.
Markets are now factoring a third 75 basis points interest rate hike by the Federal Reserve  in its September meeting.

Fed chairman Powell on Friday said the central bank will use its tools “forcefully” to attack inflation that is still running near its highest level in more than 40 years.
In his annual Jackson Hole, Wyoming, policy speech, Powell said higher interest rates will likely persist “for some time. The historical record cautions strongly against prematurely loosening policy.”

After Federal Reserve vowed to keep  interest rate higher to fight inflation at the cost of economic growth, the Dow Jones shed 3 per cent, in its biggest one-day drop since May. The S&P 500 fell 3.4 per cent while the Nasdaq slid 3.9 per cent. The 10-year bond yield also closed higher at 3.034 per cent from Thursday’s 3.023 per cent.

“US Fed statements post the Jakson Hole symposium indicated the central bank's strong commitment towards controlling inflation over growth. In cues for major central banks across the world, Fed chair Jerome Powell said that inflation is likely to remain higher for a longer period and thus require aggressive stance. This is likely to be negative for equity markets. The impact was clearly visible in US markets which fell more than 3 per cent. Indian markets are also likely to react negatively on Monday with increasing volatility over the next few days.” said Siddhartha Khemka, head-retail research, Motilal Oswal Financial Services.

"Slackness in the rate of investment, spending and hiring will be the unfortunate costs of reducing inflation. The RBI has made it clear (its intention) to achieve its medium-term inflation target of 4 per cent over the next two years. The focus on the next few weeks would be on how central banks prepare to combat (inflation) in the near term. The RBI’s rate setting panel is likely to opt for slowing down the pace of hikes and increase the repo rate by 25 bps in September. We expect some profit booking,” said Mitul Shah- Head of Research at Reliance Securities.