More Stories

Informist, Friday, Aug 16, 2024

By Alina Geogy

MUMBAI – Domestic headline indices ended sharply higher today in tandem with several global peers after data from the US calmed investors worried about an impending recession in the US. Both the Nifty 50 and the Sensex hit their two-week highs. The rise was led by strong gains in information technology and banking stocks. The market breadth was skewed towards the positive. Of the 2,797 stocks traded on the National Stock Exchange, nearly 67% of stocks ended with gains, while only 30% ended lower.

All the stocks in the Sensex ended higher, while only three ended lower in the Nifty 50 index. The Nifty 50 and the Sensex ended 1.7% higher each at 24541.15 points and 80436.84 points, respectively.

Global investor sentiment was boosted after data showed that retail spending in the US grew more than expected in July, allaying recent worries about an economic slowdown in the world's largest economy. Domestic sentiment was also lifted after the US consumer price index data for July, released late Wednesday, indicated cooling inflation and reaffirmed hopes of the US Federal Reserve cutting rates in September.

The US Federal Reserve aims to bring inflation down to its target of 2% before finalising rate cuts, Sumit Pokharna, vice president of research at Kotak Securities, said. Now, there is a strong possibility of rate cuts in September after the latest data, and this is expected to boost several sectors, especially information technology, Pokharna said. Currently, there is a 70.5% probability of a 25-basis point rate cut by the US Fed in September, as per the CME FedWatch Tool.

There was uncertainty among clients, particularly those of the banking, financial services, and insurance vertical, which led to decreased discretionary spending, Pokharna said. These clients were reluctant to spend on account of the weakening hopes of rate cuts and the anticipated hard landing of the US economy, he said.

The information technology sector outperformed its peers, with the Nifty IT gaining the most among sectoral indices. Analysts said the sector would benefit from rate cuts in the US, as it could boost discretionary spending by clients. A significant portion of businesses for domestic IT players comes from the US. The growth of the economy will directly affect the discretionary spending by clients, the head of research at a domestic brokerage firm said.

Market participants were concerned about an economic slowdown in the US after data indicated a weakening labour market. The jobs report for July, released earlier this month, had showed a fourth consecutive rise in the unemployment rate and led to worries that the US Fed may have been too late to lower interest rates.

However, analysts point to expensive stock valuations and slow sales growth, which are major concerns in the IT sector. There are no green shoots in the sector, with muted hiring by firms and slow discretionary spending by clients, a research associate at a domestic brokerage firm said. A rate cut by the US Fed might help, but we need to see improvement in discretionary spending by clients, the research associate said. If the percentage of client spending increases, then demand will go up, resulting in new orders, he said.

The Nifty IT ended nearly 3% higher and was the best performer among sectoral indices. All 10 constituents in this index ended higher. In the Nifty 50, shares of Wipro and Tech Mahindra ended over 4% higher, making them the best performers in the index. Shares of mid-cap stocks Mphasis and L&T Technology Services rose 5-7% and were the top gainers among the Nifty IT stocks. Besides these, small-cap stocks Firstsource Solutions and Zensar Technologies gained 6-8%.

Besides information technology stocks, shares of banks were the other major gainers. Shares of private lenders ICICI Bank and HDFC Bank, up 1.5-2.2%, contributed most to the gains in the Nifty 50. Analysts are of the view that valuations of private banking stocks are relatively comfortable in comparison to state-owned banks or other sectors, as the pressures they face are largely priced in.

With respect to June quarter earnings, the banking sector modestly exceeded tempered expectations despite facing headwinds, Elara Capital said in a report today. However, challenges persist with sluggish deposit momentum exerting pressure on net interest margins and signs of moderation in the unsecured loan segment, according to the report. The Nifty Bank index ended 1.6% higher, with most constituents closing in the green.

The metal sector saw some action again today after the Supreme Court judgement on Wednesday upholding the state governments' power to levy tax on the Centre and mining companies retrospectively for mining and mineral rights. Post the order, several stocks such as Coal India, NMDC, and Steel Authority of India had fallen sharply Wednesday as this ruling was expected to affect the financials of mining companies adversely.

In July, the Centre had argued that the expected quantum of tax for mining companies and public sector undertakings was three times their net worth, according to a report by the Supreme Court Observer. Meanwhile, mining companies contended that their finances would go "belly up" if the judgement was held retrospective, as per the report. While the Supreme Court has upheld the power of states to tax with a retrospective effect from 2005, it has also tempered the impact of the ruling by allowing companies 12 years to pay the tax arrears starting April 2026.

The Supreme Court's ruling will negatively affect mining companies, but we need to wait for decisions from each state as they could apply the tax differently, a research analyst covering the sector at a domestic brokerage firm said. The ruling is expected to cost the domestic mining sector around 2 trln rupees, as per various media reports. This figure could be lower, but that will be known only if there is more clarity from states, the analyst said.

Till now, only Tata Steel has said it was carrying a contingent liability of 173.47 bln rupees on its books after the Supreme Court judgement. That amount is itself 10% of their market capitalisation, the analyst said. Today, most metal and mining stocks such as Hindustan Copper, NMDC, and Steel Authority of India rebounded. The Nifty Metal index ended higher by 1.7%, with most stocks in the green. The gains in metal stocks may be seen as investors 'buying the dip' where they enter at lower levels, the research analyst quoted above said.

All the sectoral indices ended higher. The indices of the information technology, real estate, and media sectors were the top gainers, while that of pharmaceuticals gained the least.

The broader market outperformed the benchmark indices. All six Nifty mid-cap and small-cap indices snapped two-day losing streaks. The Nifty Smallcap 50 index gained the most, ending over 2% higher.

* Of the Nifty 50 stocks, 47 rose and 3 fell

* Of the Sensex stocks, all 30 rose

* On the NSE, 1,873 stocks rose, 845 fell, and 80 were unchanged

* On the BSE, 2,462 stocks rose, 1,467 fell, and 107 were unchanged

* Nifty IT: up 2.9%; Nifty Realty: up 2.5%; Nifty Pharma: up 0.4%

BSE                                               NSE
Sensex: 80436.84, up 1330.96 pts or 1.7%          Nifty 50: 24541.15, up 397.40 pts or 1.7%

End

Edited by Ashish Shirke

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000 

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2024. All rights reserved.