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Informist, Monday, Aug 5, 2024

By Alina Geogy

MUMBAI – The slump in the domestic equity markets is likely to continue Tuesday with investors globally gripped by risk-off sentiments, analysts said. Investors now fear that the US economy is heading for a recession, and the massive fund outflows from global equity markets after last week's unexpected rate hike by the Bank of Japan and the rising tensions in West Asia are not helping, they said.

The three-day meeting of the Monetary Policy Committee of the Reserve Bank of India, starting Tuesday, will be on investors' radar as they look for clues to the central bank's rate-cut trajectory. RBI Governor Shaktikanta Das has repeatedly said that the rate-setting panel's prime focus will be on domestic inflation data and not on interest-rate decisions in the US. There was also some chatter in the market that the US Federal Reserve would hold an emergency monetary policy meeting.

Global investors have been turning risk-averse over the past few sessions after weak economic data from the US gave rise to doubts that the Fed may have missed a trick and been late to cut interest rates. The probability of the US central bank cutting interest rates by 50 basis points in September rose sharply to nearly 98% from around 74% earlier today, according to the CME FedWatch tool. This is twice the 25-bps cut anticipated last week.

On top of the hike in interest rates last week, the Bank of Japan gave hawkish commentary, suggesting an aggressive upward push for rates. This shocked investors who were expecting a more gradual rate increase and resulted in a sell-off in the Japanese equity market and strengthening of the yen against the dollar.

The BoJ's rate hike and rising tensions in West Asia are major negative triggers for the market, Rajnath Yadav, research analyst at Choice Equity Broking, said. The rate hike will affect the yen carry trade where money borrowed from Japan at cheaper rates used to flow to other global markets, he said. Now, more outflows can be expected from equity markets around the world, he said.

Going forward, volatility is likely to increase ahead of the RBI's policy outcome and multiple global headwinds, including the unwinding of yen carry trades, recession fears in the US, and escalating tensions in West Asia, Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services, said in a note. "US slowdown is a bigger concern and sooner or later US Fed will bite the bullet of interest rate cuts which should provide relief in the current environment," Khemka said.

Today, the benchmark indices Nifty 50 and BSE Sensex both ended 2.7% lower at 24055.60 points and 78759.40 points, respectively, after hitting a low of over a month. The correction is seen as "good for the market", according to Asutosh Mishra, lead banking, financial services, and insurance analyst and head of research of institutional equity at Ashika Stock Broking.

Going ahead, support for the Nifty 50 is pegged at 23200-23500 points and resistance at 24500 points. India VIX, the market's fear gauge, closed a whopping 42% higher at 20.3675, hinting at near-term nervousness.

In West Asia, Israel is bracing for a retaliatory strike from Iran for the killing of Hamas political head Ismail Haniyeh in Iran's capital Tehran last week, reports said.

The political heat in Bangladesh has also caught the attention of Indian investors. "While we hope for an amicable resolution of the quota issue between the government and students, we are concerned about the Indian corporates operating in Bangladesh," Vikram Kasat, head of advisory at Prabhudas Lilladher, said in a note. Some major companies having significant operations in the country are Tata Motors, Hero MotoCorp, Emami, Marico, Dabur India, and Asian Paints. "The garments and textile sector in India may gain an advantage due to these ongoing protests and clashes," he said.

Bangladesh's Prime Minister Sheikh Hasina Wajed resigned today following weeks of protests by students against job quotas and flew to London via India, Dow Jones reported, quoting people familiar with the matter. The country's army chief, General Waker-uz-Zaman, said at a press conference that an interim government would be formed soon, according to the Dow Jones report.

Back home, among specific sectors, shares of metal companies are expected to extend losses in the upcoming session. The sector is hit as it is considered riskier than other sectors, Tushar Chaudhari, lead research analyst at Prabhudas Lilladher, said. Falling steel prices and weak exports are other factors dampening investor sentiment towards the sector, he said. The Nifty Metal was the worst performer among sectoral indices and ended nearly 5% lower after hitting a two-month low intraday. All 15 constituents of the index ended in the red.

Meanwhile, defensive stocks, such as fast-moving consumer goods and pharmaceuticals, are expected to continue to outperform peers as investors seek safe harbours. While all sectoral indices ended lower today, Nifty FMCG and Nifty Pharma fell the least. The trend was noticeable in the Nifty 50 and Nifty 200 indices, too. In the Nifty 50, only four stocks ended in the green, with three of them being FMCG stocks. Meanwhile, in the Nifty 200, nine out of ten stocks that ended higher were from the defensive pack.

Investors will also react to the June quarter earnings of Bharti Airtel, which reported better-than-expected growth in consolidated net profit. The telecom major's consolidated net profit for the quarter doubled on a sequential basis to 41.6 bln rupees.

Investors will also react to the quarterly earnings of Oil and Natural Gas Corp, which is scheduled for release today. The June quarter earnings of 3M India, Bata India, Bosch, Fortis Healthcare, Gland Pharma, IIFL Finance, Lupin, and Solar Industries India are awaited Tuesday.  End

Edited by Rajeev Pai

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