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Informist, Thursday, Aug 22, 2024

By Alina Geogy

MUMBAI – Indian equities are likely to head higher Friday, aided by positive investor sentiment on account of healthy inflows, strong economic growth, expectation of a revival in rural demand, and the upcoming festival season, analysts said. These factors could help the headline indices end higher for the second straight week and also take the Nifty 50 to its seventh consecutive session of gains, they said. Further, positive momentum in global equity markets amid heightened expectations of the US Federal Reserve cutting interest rates in September will also boost investor sentiment, they added.

This is a liquidity-led rally that is taking markets higher, a research analyst at a brokerage firm in Gujarat said. Analysts are of the view that the buoyancy in the market is because of continued buying momentum from domestic participants. Retail investors are rushing into equity-based investments in the hope of better returns than bank deposits, analysts said.

Mutual funds are sitting on a lot of cash, but they cannot do that for too long, the research analyst at the Gujarat firm said. They need to deploy that money in the market sooner or later, and hence they are buying stocks where there are chances of growth and reasonable valuations, the analyst said.

In July, the mutual fund industry in the country added a record 1.2 mln new investors, the highest level since December 2021, as per media reports earlier this week. This rapid move of first-time investors towards mutual funds is being driven by new fund offerings in popular themes.

Domestic buying momentum is strong and will help the market hold strong even though foreign investors are selling, a research analyst at a domestic brokerage said. Domestic institutional investors have net bought shares worth over 242 bln rupees on the equity markets in August, as of Tuesday. In comparison, foreign portfolio investors have been net sellers this month. In August so far, they have sold shares worth 153 bln rupees net, as of Tuesday.

Today, the Nifty 50 and the Sensex ended at 24811.50 and 81053.19 points, respectively, up 0.2% each. For the Nifty 50, 24750-24700 points would be a key support zone, while 24900-24950 points could act as a key resistance area, Shrikant Chouhan, head of equity research at Kotak Securities, said in a note. Some other analysts said the indices have gained significantly this week and some consolidation could be expected on Friday.

This week, the domestic indices largely mirrored gains in their global peers. On Wednesday, indices in the US ended higher after the minutes of the US Federal Open Market Committee's meeting in July showed that Fed officials were inclined towards a rate cut next month.

Investors will continue to watch out for more developments and economic data from the US. After market hours today, the weekly US jobless claims rose by 4,000 to 232,000 for the week ended Saturday. This was slightly higher than the expectation in a Dow Jones poll of 230,000 jobless claims. 

Investors will also look for cues from Powell's speech at the Jackson Hole symposium Friday. Market participants will focus on the Fed chair's "tone" to figure out the quantum of rate cuts, Amish Shah, research analyst at Taurus Corporate Advisory Services, said. A rate cut is surely on the way, as the Fed would want to avoid a hard landing in the economy, he said.

"With rising unemployment and a weakening economic outlook, market participants largely view a rate cut as likely, provided inflation continues to moderate," Dhawal Ghanshyam Dhanani, fund manager at SAMCO Mutual Fund, said in a note. "Investors would breathe a sigh of relief, as these anticipated cuts could provide a significant tailwind for economic growth and boost investor confidence."

Back home, the finance ministry said the headline inflation outlook is positive given moderate core inflation and good progress in the southwest monsoon, according to the Monthly Economic Review for July released today. Further, the projection of real GDP growth of 6.5-7.0% for 2024-25 (Apr-Mar), made in the Economic Survey for 2023-24, seems appropriate as of now, the ministry said. "India's economic momentum remains intact," it said.

In a bull market, price movements can be "irrational", which is why one will have to look at specific stocks and company details, a research analyst at a domestic brokerage said. But there remain pockets of comfortable valuation and sectoral rotation can be expected to continue in upcoming sessions, the analyst added.

Besides global factors, the upcoming festival season will provide a much-needed boost to sales across sectors such as fast-moving consumer goods and automobiles, the analyst said. There is some buying interest in automobile and auto ancillary stocks as the upcoming festive season is expected to improve sales, a research analyst said. Further, valuations in this sector are a bit comfortable, especially in some automobile ancillary stocks, the analyst added.

Further, industrial, capital goods, and information technology stocks are holding on well, the analyst said. Within the industrial sector, several companies have good order book visibility and scope of margin growth, the analyst added. Heightened expectations of the Fed cutting rates is driving buying momentum in information technology stocks, which have a large exposure to the US market.

Banking stocks are seen as an attractive option for investors on account of relatively comfortable valuations and recent underperformance. However, there are concerns due to compression of net interest margins, slowing retail deposits, and increased slippages and credit costs.

Among public-sector companies, defence stocks have concerning valuations and are expected to fall more in the upcoming sessions, analysts said. These stocks were seen to have risen "too fast" in past sessions, but their earnings are yet to play out as impressively.  End

Edited by Rajeev Pai

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