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Informist, Wednesday, Aug 21, 2024

By Alina Geogy

MUMBAI – Domestic headline indices are expected to track cues from global markets Thursday as investors assess the minutes of the US Federal Reserve's policy meeting held in July, which will be released later today. Investors will look for confirmation that the Fed is inclined towards delivering a looser monetary policy in the coming months amid signs that inflation in the US is getting under control.

The minutes could show the Fed was "increasingly comfortable on the inflation side and a little uncomfortable on the employment side", Dow Jones reported an analyst at financial services firm ING saying in a note. Investors will also wait for commentary about the health of the US jobs market from the Bureau of Labor Statistics when it publishes its annual revision to non-farm payrolls today. The bureau is expected to significantly downgrade its revision to jobs growth for 2023-24 (Apr-Mar), suggesting the Fed saw the labour market as overly tight during that period and underestimated economic slack, the analyst at ING said.

A potential revision to non-farm payrolls gains importance as the US labour market is being watched closely, particularly after the unemployment rate in the country rose to a three-year high of 4.3% in July. This unemployment data had triggered concerns that the US economy was heading towards a recession. Today, the Nifty 50 recouped losses made in the sell-off on Aug 5, when investors tracked a sharp decline in global indices over worries about an impending recession in the US and unwinding of yen carry trades.

Comments by Fed Chair Jerome Powell Friday at a symposium in Jackson Hole, Wyoming, are awaited. Powell is widely expected to hint at the possibility of a rate cut in September. His comments may also provide clues about the quantum of rate cuts. Currently, there is a strong expectation that the Fed would cut rates by at least 25 basis points, while there is also some probability of a 50 bps rate cut, according to the CME FedWatch tool.

Market participants have two major triggers to look forward to, namely the US Federal Open Market Committee's interest rate decision in September and the Reserve Bank of India's reaction that follows, Jathin Kaithavalappil, assistant vice-president of research at brokerage Master Trust, said. Several market watchers feel that a rate cut by the Fed is on the way next month, but some, including Kaithavalappil, feel the hot job market scenario in the US and still-high inflation levels could push the Fed to keep rates unchanged at an over two-decade high.

However, analysts are divided on whether the RBI would cut interest rates if the Fed were to do so. Some analysts said the RBI would follow suit and begin cutting interest rates, but others said domestic inflation levels were still above target to trim rates. High food inflation is also a major concern, and the central bank needs to focus on lowering this, these analysts said.

The RBI's Monetary Policy Committee has already said it will focus on bringing inflation down to its target of 4% before it cuts rates. The RBI cannot reduce interest rates just on the basis of a single print, Governor Shaktikanta Das told news channel NDTV Profit on Tuesday. In July, CPI inflation fell to 3.54%, its lowest level since September 2019. However, this decline to a level below the RBI's inflation target of 4% was mainly on account of the statistical effect of a high base. The RBI's projections do not see inflation coming down to 4% on a durable basis even in the first quarter of 2025-26 (Apr-Mar).

The market breadth today was inclined towards gains and this positive bias is likely to continue, Rajesh Palviya, head of technical and derivatives research at Axis Securities, said. Nearly 65% of the total stocks traded on the NSE ended higher, and 33% ended lower. Mid- and small-cap stocks will have more buying interest in the upcoming sessions, Palviya said. He suggested investors hold on to long positions in these stocks. The Nifty Smallcap 250 and Nifty Midcap 150 have gained for four consecutive sessions.

"We are of the view that the larger market texture is bullish but buying-on-dips and sell-on-rallies would be the ideal strategy for traders," Shrikant Chouhan, head of equity research at Kotak Securities, said in a note. The Nifty 50 index is expected to find resistance at 25000 points and support at 24400 points. Today, the Nifty 50 index ended at 24770.20 points, up 0.3%, and the Sensex ended at 80905.30 points, up 0.1%.

Among sectors, banking stocks are expected to contribute to the rise in the Nifty 50 in the next session. There was some pressure due to the expiry of Nifty Bank derivatives today, but we can expect good traction in banking stocks Thursday, Palviya of Axis Securities said. Meanwhile, metal stocks are seen weak in the short term owing to high valuations, slow recovery of manufacturing in China, and low steel prices, analysts said.

Fast-moving consumer goods stocks are likely to extend gains Thursday, analysts said. There has been an improvement in consumption patterns, especially in the rural segment, which is a vital market for FMCG companies, a research analyst at a domestic brokerage said. Rural incomes are already improving and are expected to rise further, aided by government schemes and budgetary stimulus for the rural economy, the analyst said. Some FMCG stocks are fairly valued, and recent management commentary by several companies for the June quarter indicated a revival in rural demand, Kaithavalappil of Master Trust said.

Another defensive sector, pharmaceuticals, is also likely to rise further in the upcoming session. Pharmaceutical stocks have been gaining traction, especially after the US government effectively banned the import of some drugs from China through the Biosecure Act, Kaithavalappil said. This ban is expected to see US consumers shift from China-based drugmakers to Indian pharmaceutical companies. Indian companies are also set to benefit as the demand for active pharmaceutical ingredients and complex-formulation drugs is growing, analysts said.  End

Edited by Rajeev Pai

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