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Informist, Wednesday, Aug 7, 2024

By Anshul Choudhary

MUMBAI – Benchmark indices are seen muted Thursday despite witnessing sharp gains today. Analysts are cautious of uncertainty in global markets due to recession fears in the US, geopolitical tensions in West Asia, and unwinding of yen carry trades. With these uncertainties at the forefront, analysts are bracing for volatility ahead, which could be exacerbated Thursday due to weekly expiry of index derivatives contracts. 

In a major event for India, the Reserve Bank of India Governor Shaktikanta Das will detail the outcome of the Monetary Policy Committee's meeting on Thursday. The rate-setting panel is expected to keep the repo rate and the policy stance unchanged this week with inflation still running above the central bank's target and growth staying robust, according to an Informist poll.

Today, the Nifty 50 took a breather from the recent sell-off after looking at the positives from global markets. Sentiment improved in global markets as yen weakened for the second day, raising hope that the unwinding of yen carry trades may stabilise. At 1736 IST, the yen was 147 against the dollar, down from 144.52 on Tuesday. The Nifty 50 closed 1.3% higher at 24297.50 points.

Further, Bank of Japan Deputy Governor Shinichi Uchida's dovish comments that they will not raise rates when markets are unstable gave investors some comfort. "In contrast to the process of policy interest rate hikes in Europe and the US, Japan's economy is not in a situation where the bank may fall behind the curve if it does not raise the policy interest rate at a certain pace," Uchida said in a speech to business leaders in the northern island of Hokkaido, according to a report by Dow Jones.

While concerns around the unwinding of carry trades have come down, there is still uncertainty around how much money is being put to use as part of this strategy. Any appreciation in the yen could push investors to further unwind trades and put pressure on stocks. Owing to this, foreign investors have already taken out money from India since these concerns around carry trades began this week. In the first two days of this week, foreign institutional investors have net sold Indian equities worth 135 bln rupees.

Moreover, recession worries in the US are adding to uncertainty. There are some analysts who are concerned that the US Federal Reserve may be too late in cutting rates now and that the country may soon face recession. However, some of Fed officials have tried to calm investors and refuted claims of recession in the US. Investors now await more macroeconomic data from the US to ascertain if the US is actually falling into recession.

"Investors are not out of the woods yet. August is a historically poor month for the market, and there's little economic data on the calendar for the next couple weeks to change the narrative," Vikram Kasat, head of advisory at Prabhudas Lilladher, said in a note.

With these concerns around, Raj Deepak Singh, a derivatives analyst at ICICI Securities, expects the Nifty 50 to be in range. "I don't think there is much upside possible from here, and looking at global markets, we may even touch Monday's lows again," he said. Technical and derivative analysts expect the Nifty 50 to find support at 24200-24000 levels, while resistance is seen at 24450-24500 points.

Domestic equities could continue to see higher turbulence over the next few weeks, but the overall uptrend in shares will still remain intact over the medium- and long-term, due to strong domestic institutional and non-institutional inflows, said analysts. End

US$1 = 83.96 rupees

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Deepshikha Bhardwaj

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