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Informist, Friday, Aug 23, 2024

By Alina Geogy

MUMBAI – Amid growing anticipation that the US Federal Reserve would cut key interest rates by at least 25 basis points in September, market participants are likely to take cues from the Fed Chair Jerome Powell's much-awaited speech at the Jackson Hole symposium later today. They are likely to assess his comments closely for some clarity about the Fed's interest rate trajectory and quantum of potential rate cuts, which may drive sentiment next week.

Powell's speech at the Jackson Hole Economic Symposium is expected to support the Fed's call for a 25-bps cut in each of the remaining three meetings of this year, Goldman Sachs said, as reported by Dow Jones. "A dovish surprise could be any hint that the level of the funds rate is inappropriately high, while a hawkish surprise could be highlighting instead that broad financial conditions are still quite easy," Goldman Sachs said. Powell is scheduled to speak at the symposium at 1930 IST. A dovish tinge to the speech could push up global equity markets and vice versa.

If the Fed cuts rates, most other central banks are likely to follow suit, analysts said. The Fed will cut rates as it would want to avoid a hard landing of the US economy even though inflation in the country is not at the target, a head of research at a domestic brokerage firm said. Nearly 72% of interest rate traders expect the probability of a 25-bps rate cut at the Fed's meeting in September, while the remaining 28% expect a 50-bps cut, as per the CME FedWatch Tool.

Analysts expect benchmark indices to consolidate in the upcoming sessions due to strong gains this week. Today, the Nifty 50 closed higher for the seventh straight session, at 24823.15 points, up 11.65 points or 0.1%. The Sensex ended at 81086.21 points, up 33.02 points. Both indices have gained for two straight weeks now.

The short-term market texture is positive, but there could be range-bound activity in the near future due to temporary overbought conditions, Amol Athawale, vice-president of technical research at Kotak Securities, said in a note. The Nifty 50 index will find support at 24750-24700 points and face resistance at 24900-24950 points.

Banking stocks are widely expected to extend gains next week, but gains are likely to be capped due to worries over deposit growth, compression of net interest margins, and increasing slippages and credit costs of banks. It would be good to invest in bank stocks for the medium term, Jathin Kaithavalappil, assistant vice-president of research at brokerage Master Trust, said. He is bullish on shares of Bank of Baroda and State Bank of India among state-owned banks but said generally, public sector banks have very high valuations right now and investors need to wait before buying these stocks.

For private banking stocks, the valuations were alright for most except for HDFC Bank, he said. He also raised concerns over the high cost of deposits in private banks. Kaithavalappil said he was not inclined towards HDFC Bank as the bank was unable to meet the target for expanding its branch network in the last financial year. The Nifty PSU Bank index gained 2.5% this week, while the Nifty Private Bank index rose 1%.

Pharmaceutical stocks are also expected to extend gains in the upcoming sessions, supported by favourable valuations, analysts said. The sector is showing encouraging momentum and companies involved in the active pharmaceutical ingredient business and contract development and manufacturing are seeing margins stabilise as demand increases, Krishna Appala, senior research analyst at Capitalmind Research, said in a note.

In the agrochemical sector, industry leaders believe that the worst of the volume declines is behind them, Appala said. "They expect growth to pick up in the coming years, although pricing pressures are likely to persist throughout the year". Meanwhile, for sectors such as public sector enterprises, defence and metal there are still concerns about expensive valuations.

Mid- and small-cap stocks are expected to consolidate as there has been very strong buying momentum in the past sessions, analysts said. There are pockets of reasonable valuations in the broader market stocks and these are expected to see continued buying interest, the head of technical and derivatives research at a major domestic brokerage house said. Nifty mid-cap and small-cap indices rose for the second straight week, but the pace of gains slowed down as the week progressed. Today, Nifty mid- and small-cap indices, except Nifty Smallcap 250, ended lower.

End

Edited by Saji George Titus

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