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Informist, Monday, Aug 26, 2024

By Alina Geogy

MUMBAI – After gaining for two weeks in a row, domestic benchmark indices are expected to consolidate on Tuesday as the current overbought conditions in the market could lead to some correction before testing record highs, analysts said. There are also some concerns about tensions in West Asia escalating after missile attacks by Israel and Lebanon-based militant group Hezbollah. However, US Fed Chair Jerome Powell's statement Friday that it was time for the Federal Reserve to cut interest rates will keep overall sentiment positive, analysts said.

Over the weekend, Israel struck multiple targets in Lebanon with around 100 jets while Hezbollah fired missiles and drones into Israel. Tensions have risen sharply after Israel killed top Hezbollah commander Fuad Shukr in Beirut in late July. Later, Hamas political leader Ismail Haniyeh was also killed in an explosion that Iran blamed on Israel.

There might be pressure on the market if the West Asia crisis intensifies, a research associate at a domestic brokerage firm said. The issue is leading to a surge in prices of crude oil and commodities, which can affect companies across sectors, he said. Amid worries that the crisis would escalate, Brent crude oil futures rose over 2% to $80.96 per barrel on the Intercontinental Exchange.

Higher crude oil prices are likely to adversely affect oil marketing companies as their oil refining margins would take a hit, the research associate said. Meanwhile, metal stocks are likely to gain as higher prices of metals such as copper will result in a higher realised price for the inventory, the research associate said. Today, the Nifty Metal index rose in the second half of the session and was the top gainer among sectoral indices. The Nifty Oil & Gas index also ended higher. However, among constituents of this index, shares of upstream oil companies rose while those of most oil marketing companies fell.

Analysts also warn that some bouts of profit-booking could be seen in the upcoming sessions since the indices have gained two weeks in a row. The Nifty 50 has risen for eight consecutive sessions, during which it gained 3.6%. The Sensex has gained for five straight sessions, rising 1.6% in the period.

Analysts iterated that the overall sentiment in the market remains positive. Last week, global sentiment was bullish due to growing expectations that the US Federal Reserve would cut interest rates at its monetary policy meeting next month. The hopes for a rate cut were further strengthened after Fed Chair Jerome Powell on Friday said "the time has come for policy to adjust".  Powell's statement at the Jackson Hole Economic Symposium is the most clear indication that the Fed is set to loosen monetary policy.

"The US Fed has hinted at a possible rate cut in September, which has already influenced a decline in US treasury yields and the dollar index, fuelling a rally in global markets", Jathin Kaithavalappil, assistant vice-president of research at brokerage firm Master Trust, said. "While the exact size of the cut remains unclear, there's a higher likelihood of a 25-basis-point reduction rather than 50".

The rate cut is widely expected to boost discretionary spending in the US, which is a major market for Indian information technology companies. Shares of IT firms are expected to gain over the next few days, analysts said, but added things would become more clear once we have more information on the path of monetary easing beyond the September meeting of the Fed.

The sentiment towards the IT sector is likely to remain buoyant for a week or so, especially for the mid-cap IT stocks, a research analyst covering the sector at a domestic brokerage firm said. Today, the Nifty IT index was the third top gaining sectoral index, with all 10 constituents ending higher.

Among other sectors, the pharmaceutical pack is expected to rise further. Largely healthy earnings for the June quarter, growing buying interest for defensive stocks, and the sector's recent underperformance are factors attracting investors to this sector. The Nifty Pharma ended slightly higher today with more than half of its constituents ending higher.

"The bulls are in full control of the markets at the current juncture and are using every intraday correction to create long positions", Tejas Shah, technical research analyst at JM Financial said in a note. For the Nifty 50, support is now pegged at 24850 points, while resistance is seen at 25090 points. End

US$1 = 83.90 rupees

Edited by Saji George Titus

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