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Informist, Tuesday, Sep 3, 2024

By Alina Geogy

MUMBAI – Benchmark equity indices are expected to resume their upward journey on Wednesday, after taking a breather today following gains for at least 10 consecutive days. However, the gains are likely to be capped as investors are concerned about an impending sharp correction in the market, especially as valuations are stretched. 

Analysts said several factors contributed to the long winning streak for the benchmark indices over the past few weeks. These include growing interest in equity investments by retail investors, healthy participation from domestic as well as foreign institutional investors, and strengthening hope of rate cuts by the US Federal Reserve. However, the recent rally has also led to concerns about sharp profit-booking in the coming days as the market is in an overbought situation, they said.

Investors await the US manufacturing Purchasing Managers' Index data, due later today. The employment report for August from the US, due Friday, is also awaited ahead of the US Federal Reserve's interest rate decision this month. Economic data from the US is being closely monitored by investors, as it could provide hints about the interest rate decision of the US Federal Reserve. 

While investors continue to track geopolitical developments in West Asia, concerns around these have taken a back-seat temporarily.

Over 49% of all stocks traded on the National Stock Exchange ended higher today, while a nearly equal number ended lower. "The market breadth suggests a strong tug of war between the bulls and bears," Osho Krishan, senior technical and derivatives analyst at Angel One, said in a note. In contrast, there were signs on Monday that buying momentum could be losing steam after nearly 57% of all stocks traded on the exchange ended lower and only around 40% rose.

The Nifty 50 and the Sensex ended at 25279.85 points and 82555.44 points, respectively, largely unchanged from the previous close. The Nifty 50 moved in a narrow range of 86 points today and is now expected to face resistance at 25500 points, while support is seen at 25000 points. The 50-stock index ended higher for the 14th straight session today, while the 30-stock index snapped a 10-day winning streak.

An upmove in benchmark indices will primarily depend on gains in major bank stocks, which saw subdued gains in the past few days. The Nifty Bank is expected to continue moving "sideways" unless there is some buying momentum in heavyweight private bank stocks, after which the banking index could see a breakout, Jatin Gedia, technical research analyst at Sharekhan, said.

It is crucial to monitor the recent movement in the high-beta Nifty Bank index, as any potential increase in buying activity, following a prolonged consolidation phase, could inject the necessary momentum into the market, Krishan of Angel One said. 

In the broader space, one should be a bit cautious with mid- and small-cap stocks, particularly those that have rallied a lot recently, a research analyst at a domestic brokerage firm said. Investors should book at least 70-80% profits in these stocks, the analyst said. If comfortable, even 100% of the positions can be exited at this point in select stocks, the analyst said. Profit-booking is advisable in stocks that have risen 30-40% due to a big "frenzy rally", the analyst said.

The mid- and small-cap space saw a major fall early this year, particularly after Securities and Exchange Board of India Chairperson Madhabi Puri Buch warned about "froth" build up. However, following major losses, investors turned back to these stocks after companies reported better earnings growth.

Defence stocks are expected to rise more over the next few days due to hope of more orders from the government after the Defence Acquisition Council's meeting today, analysts said. Shares of Bharat Dynamics, Mazagon Dock Shipbuilders, Garden Reach Shipbuilders, and Hindustan Aeronautics, which rose as much as 3-6% today, may rise more on Wednesday. However, concerns about expensive valuations remain and will limit gains for these stocks, analysts said.

The council today approved 10 capital acquisition proposals worth 1.45 trln rupees to enhance defence preparedness. It cleared a proposal to procure battle tanks, air defence fire control radars, Dornier-228 aircraft, fast patrol vessels, and offshore patrol vessels, among others.

Shares of fast-moving consumer goods, information technology, and metal companies are likely to gain in the near term, Gedia of Sharekhan said. Pharmaceutical stocks, which outperformed the benchmark indices in August, are also expected to gain to some extent, he said. However, shares of public sector enterprises such as railway-linked companies might see some more profit-booking, he said.

Latest data has shown renewed buying interest from foreign institutional investors, which is bound to lift investors' sentiment. Foreign institutional investors net bought shares worth 17.35 bln rupees on the bourses on Monday, and domestic institutional investors net bought shares worth 3.56 bln rupees, as per provisional data.

Subscription to Gala Precision Engineering's initial public offering will close on Wednesday. In the case of Bajaj Housing Finance, the company has set a price band of 66-70 rupees per share for its IPO, which will open for subscription on Monday and closes on Sep 11.  End

Edited by Avishek Dutta

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