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Informist, Tuesday, Aug 6, 2024

By Anshul Choudhary

MUMBAI - Several uncertainties in global markets, such as the possibility of a recession in the US, geopolitical tensions in West Asia, and unwinding of yen carry trades pushed investors to book profits at higher levels. Benchmark indices ended slightly lower today as investors continued to sell risky assets such as equities and await more clarity from global markets.

Indices opened higher amid positive cues from Asian markets and hopes that unwinding of carry trades would stabilise. However, recession fears in the US have added to uncertainty, which could hurt earnings growth going forward, analysts said. The Nifty 50, which was up 1.4% at one point, closed 0.3% lower at 23992.55 points--down 4% from its lifetime high touched on Jul 29. The Sensex closed 0.2% lower at 78593.07 points.

"We never get to know how much of money is in these carry trades, and there are too many moving parts right now--recession worries in the US, unwinding of carry trades, and issues in the Middle East. Because of this, there will be near-term volatility," Sanjeev Hota, head of equities said today.

The possibility of a recession in the US is a major concern, which if materialises could pose risk to earnings growth, especially in the information technology space, Hota said. Apart from this, there were several views floating in the market, with some analysts saying that the recent US jobs data is a sign that the country's economy is slowing down more than expected. At the same time, some analysts were of the view that they await more macroeconomic data from the US to ascertain if the US is actually going into a recession.

Further, there are also divided views over the exact quantum of rate cuts by the US Federal Reserve at its September meeting. With the unemployment rate in the US in July rising to a three-year high of 4.3%, some analysts expect the US Fed may have to cut interest rates by 50 basis points, while there are others who continue to hope for a 25 bps rate cut.

Nomura Global Markets Research's US team expects a 25 bps rate cut in September, but they have raised their expectations to total of 75 bps rate cut this calendar year from 50 bps cut earlier. "At this stage, the US team does not believe that the deterioration in the labour market is the start of a worsening trend, but the balance of risks is now skewed to the downside," the brokerage said in a report today.

The recent appreciation in the yen is adding to uncertainty, which has pushed investors to unwind their yen carry trades in the past few days. Such unwinding was a major reason for a sharp sell-off in equities on Monday, including India. Carry trades is a strategy where investors borrow from markets with low interest rates, such as Japan, to fund investments in higher-yielding assets globally.

Reports in global media said unwinding of carry trades stabilised today amid slight weakness in the yen. However, there is still a possibility of further appreciation in the yen as Bank of Japan is expected to raise interest rates further. Moreover, a rate cut in the US could depreciate dollar and effectively strengthen the yen. At 1618 IST, the yen was at 144.87 a dollar compared with 144.05 on Monday.

STOCKS TODAY

Shares of public sector banks and other financial services' companies such as life insurers were some of the worst hit large-caps today. Energy and oil companies were down amid global uncertainty and tensions in West Asia, which could affect crude oil prices.

Among stocks, HDFC Life Insurance and SBI Life Insurance fell 4.4%, and 2.8%, respectively. The fall comes after healthy gains in the past two months, and these stocks are still up 9-12% from a month ago.

Oil and Natural Gas Corp, and Bharti Airtel fell despite posting better than expected net profit in Apr-Jun. Shares of Bharti Airtel fell 1.5%, and those of ONGC were down 1.3%.

On the upside, shares of IT companies bounced back from Monday's fall amid short covering in the sector. Further, better-than-expected earnings of several IT companies in Apr-Jun, and expectations of rate cuts in the US are leading to positive sentiments around this sector. However, a fundamental analyst, who covers the sector, expressed concerns that a recession in the US may prove to be negative for the sector.

Among other large-caps, Marico fell 6.5% owing to concerns that the company's growth in Bangladesh may be affected in the wake of recent turmoil and unrest. Nuvama Institutional said Marico has an exposure of 11-12% of its consolidated business to Bangladesh, which the brokerage said was the highest among fast-moving consumer goods companies. 

Bangladesh has been seeing protests from students, who have demanded to abolish quotas given in civil service jobs. These protests forced Sheikh Hasina to resign from the Prime Minister's post and flee the country on Monday.

The broader market underperfomed large-caps amid expensive valuations in this space. The Nifty Midcap 150 was down 0.6%, and the Nifty Smallcap 250 fell 0.4%. Among mid-caps, KPR Mill ended 14.4% higher today.

Apart from others, there were several stock-specific reactions to quarterly earnings. Shares of BLS International Services rose 14% after its consolidated net profit rose 66% to 1.14 bln rupees. Shares of Syrma SGS Technology fell 8.3% after its consolidated net profit fell 32% on year to 192.97 mln rupees.

Shares Akums Drugs And Pharmaceuticals closed 17% higher at 796.25 rupees after listing at a premium of 6.8%. Its initial public offering was subscribed 63.56 times as on the third and final day with issue price at 679 rupees. 

* Of the Nifty 50 stocks, 21 rose and 29 fell

* Of the Sensex stocks, 10 rose and 20 fell

* On the NSE, 1,031 stocks rose, 1,703 fell, and 79 were unchanged

* On the BSE, 1,592 stocks rose, 2,344 fell, and 92 were unchanged

* Nifty PSU Bank: down 1.3%; Nifty Financial Services: down 1.1%; Nifty Realty: up 0.8%

BSE                                              NSE
Sensex: 78593.07, down 166.33 pts or 0.2%        Nifty 50: 23992.55, down 63.05 pts or 0.3%

End

Edited by Vidhi Verma

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