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Informist, Tuesday, Aug 13, 2024

By Anjali Singh

MUMBAI – Indian equities are expected to extend losses for the third straight session on Wednesday as the overall risk aversion being seen in global financial markets could prompt investors to take some profits off the table, given the backdrop of rising geopolitical tensions, uncertainty over the timing of interest rate cuts by leading central banks, and slowing global growth. This uncertain backdrop means the data on US retail inflation for July, to be detailed later today, will assume significance for global markets as it is seen providing possible cues about the trajectory of interest rates in the world's largest economy.

Action in domestic equities might be stock-specific as a slew of companies will detail Apr-Jun earnings on Wednesday, which is the last working day before the mandated 45-day window for declaring quarterly results is up. The Indian stock market will be shut on Thursday for Independence Day.  

Expiry of the weekly options contracts of the Nifty 50 will also add to the volatility in the market on Wednesday. The Nifty 50's weekly options typically expire on Thursday.

"We expect the market to continue its consolidation mode due to the lack of any major positive trigger," Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services, said in a note. Healthy macroeconomic data from India has failed to provide much-needed support to equities as concerns over global developments remain, he said. 

Today, the Nifty 50 closed 208 points, or 0.9% lower, at 24139 points and the Sensex closed 692.89 points, or 0.9% lower, at 78956.03 points. Going forward, support for the 50-stock index is seen at 24000 points, while stiff resistance is seen at 24300 points.

These headline indices have lost over 3% so far in August, but the sell-off has been even deeper in mid-cap and small-cap stocks. The Nifty Midcap 150 and Nifty SmallCap 250 have lost 3.7% and 4.3% so far this month. Uncertainty over the growth of the US economy, interest-rate hike in Japan, unwinding of carry trades, and fresh geopolitical tensions in West Asia have roiled equity portfolios in the past fortnight.

Investors should wait to get a better picture on the global front, a research analyst at a domestic brokerage firm said. "It is better to have a light position right now," the analyst said.

In the world's largest economy, CPI inflation has become crucial as weak employment trends and slowing corporate profits have fuelled worries of a potential recession in the country. While the recession woes eased after the weekly initial jobless claims fell more than expected, market participants will be watching the CPI data later today for cues on the trajectory of rate cuts by the US Federal Reserve.

Experts remain divided on the quantum of rate cuts by the US central bank at its September meeting. The CME Fedwatch tool shows a 48.5% probability of a 25-basis-point cut in interest rates at the September meeting and a 51.5% probability of a 50-bps cut.

Back home, investors await the data on wholesale inflation for July, due Wednesday. India's WPI inflation is likely to have fallen to a three-month low of 2.2% in July from a 16-month high of 3.36% in June, as per an Informist poll. India's annual CPI inflation, released Monday, was 3.54% for July compared with 5.08% in June. This was lower than the 3.7% expected as per a poll by Informist. The headline CPI fell below the Reserve Bank of India's medium-term target of 4% for the first time in nearly five years in July, mainly due to a statistical effect of a high base.

Economists believe inflation in India could rise once again, noted Prashanth Tapse, senior vice president of research at Mehta Equities. This could mean the Reserve Bank of India will not be in a hurry to trim interest rates in the near term, he added. 

Morgan Stanley Research also believes the RBI will stand pat on interest rates through 2025, due to a combination of robust growth and above 4% inflation. The RBI's forecast does not see inflation decelerating durably to 4%, and as the leverage cycle is strong, and the banking system is stretched, the central bank could want to stay put to lean against these leverage trends, Morgan Stanley said. 

STOCKS-TO-WATCH

HDFC Bank may continue to extend losses from today's session after index aggregator MSCI did not raise the float adjustment for the stock as much as the market had expected. Late Monday, MSCI said it would raise the adjustment factor for HDFC Bank in its indices to 0.75 from the current 0.5, which will be effective from Sep 2. The remaining float adjustment to 1 from 0.75 will be announced in its next rejig, scheduled in November.

The said float adjustment would be possible if the headroom for foreign investors continues to be at least 20% at that time, MSCI said. Nuvama Institutional Equities now expects inflows of only around $1.8 bln into the bank's shares, equivalent to 93 mln shares, post the MSCI index rejig, it said in a report today. This is lower than the inflows of $3.2 bln-$4.0 bln projected by the brokerage in a report in early July. 

The market had been expecting the doubling of the stock's weight in the MSCI's indices in this rejig, with investors buying in anticipation, Shreyansh Shah, research analyst at Stoxbox, said. However, now analysts expect a further downside in the stock, which may also weigh on the headline indices as well as the banking sector, as the stock is a heavyweight. Today, banking and financial services stocks closed in the red, with Nifty Bank closing 1.5% lower and Nifty Financial Services closing 1.9% lower.

Investors will be focusing on shares of Hindustan Aeruonautics and Mazagon Dock Shipbuilers as these companies are slated to announce their quarterly earnings on Wednesday. They will also react to the quarterly earnings of Hero MotoCorp and Apollo Hospitals Enterprise, released after market hours today. Hero MotoCorp reported a net profit of 11.23 bln rupees, up 36.1% on year, in the June quarter, but slightly missed the analysts' estimates of 11.84 bln rupees. Meanwhile, Apollo Hospital Enterprise reported a consolidated net profit of 3.05 bln rupees in the June quarter, up 83.2% on year, beating the Street's expectations of 2.34 bln rupees.

Pharmaceutical and consumption-related stocks may rise amid defensive buying in the market, the analyst said. The Nifty Pharma index has risen 2% this month, while Nifty India Consumption fell 1.6%.  End 

US$1 = 83.97 rupees

With input from Alina Geogy

Edited by Manisha Baxla

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