Fed narrative may affect market mood

Mumbai: The outcome of one of the US Federal Reserve's most anticipated policy meetings in recent times this week could determine the direction of the stock market, struggling to maintain momentum after the bounce early last week. With the sale of Indian stocks by foreign investors continuing unabated, traders are cautious as the Nifty struggles to cross a key hurdle at 17,550-17,650 levels.

Market participants are anticipating Fed chairperson Jerome Powell will announce the start of the tapering of the pandemic-era stimulus programme on Wednesday. Such expectations have strengthened after US November consumer inflation announced after Indian trading hours on Friday surged to a 6.8% annual growth rate, the highest reading in more than 39 years. To be sure, Wall Street had advanced on Friday, shrugging off the strong inflation reading.

Investors to Look for Clues

In the wake of accelerating prices, investors will scrutinise the Fed's comments for any clues regarding interest rate increases in addition to the pace at which it will withdraw its bond purchases.

"We expect the FOMC (Federal Open Market Committee) to position for an earlier liftoff next week, doubling the pace of tapering, eliminating references to transitory inflation, and hastening the pace of hikes in the dot plot," Barclays' analysts, including Jonathan Millar, wrote in a recent client note. Last week, the Sensex and Nifty rose 1.8% as concerns over Omicron eased slightly and the Reserve Bank of India's policy actions were more dovish than expected. But equities struggled to maintain the upmove later in the week.

"The Nifty is facing resistance around 17,550 and is currently trading around its 20 DMA," said Yesha Shah, head of equity research, Samco Securities.