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Informist, Wednesday, Sep 4, 2024

By Noel John

MUMBAI – Indian headline equity indices ended lower today on renewed fears of a likely slowdown in the US, following weak manufacturing data in the world's largest economy. Today's losses follow muted movements in the previous session and a bull run of at least two weeks. 

The US market ended sharply lower on Tuesday after data showed manufacturing in the country contracted on year in August, though it improved slightly from July. Tracking this fall, shares of Indian information technology companies, which have exposure to the US, were the major laggards today. 

Investors were also cautious ahead of key labour market data from the US, due Friday. The employment report for August is awaited ahead of the US Federal Reserve's interest rate decision later this month. The US Fed has been trying to tighten the country's labour market as a measure to bring inflation under control.

Even though the indices opened sharply lower today, they came off lows later due to a recovery seen in index-heavyweight Reliance Industries and HDFC Bank. The Nifty 50 and the Sensex ended 0.3% lower each at 25198.70 points and 82352.64 points, respectively. The Nifty 50 index has snapped a 14-day winning streak, though the previous session saw muted gains. The 50-stock index is now expected to find support at 25000 points, while the resistance is seen at 25350 points, according to technical and derivatives analysts. 

Although the domestic market fell tracking weak global cues, it will recover later this week as macroeconomic cues are quite strong and India will likely gain from global pain, said Chokkalingam G, founder of Equinomics Research. The fastest GDP growth, good monsoon, soaring foreign exchange reserves, continued massive inflow of new investors into the capital markets, and robust tax collections would augur well for market recovery, said Chokkalingam. 

Falling crude oil prices is also positive for the Indian economy and markets as external economic parameters like current account balance and foreign exchange reserves will improve, he added. "However, overvalued small- and mid-cap stocks will continue to have possible major downside risks," said Chokkalingam.

Owing to the fears of a likely slowdown of the US economy, shares of IT companies fell sharply as the majority of their clients are from there. Investor sentiment was also dampened as shares of US chipmaker Nvidia plunged 10%, losing a record $279 bln in market capitalisation, reports said. This marked the biggest-ever single-day decline in market capitalisation for a US company and took the market cap of Nvidia to $2.65 trln. Back home, Wipro, LTIMindtree, Infosys, and Tata Consultancy Services were the worst performing IT stocks in the Nifty 50 index. 

However, analysts are positive about the growth prospects of domestic IT companies. Brokerage firm Nirmal Bang Institutional Equities upgraded the rating for Indian IT services companies to "overweight" from "underweight" earlier. While a 50- to 75-basis-point rate cut by the US Federal Reserve in 2024 may not significantly impact earlier discretionary wins or the US mortgage business, it could improve client sentiment from "cautiously optimistic" to "slightly optimistic", the brokerage said. The banking, financial services, and insurance sector, which are major clients of IT players, is showing early signs of recovery in spending as technology budgets for the top six US banks rose 6.5% on year in the last 12 months, the brokerage said.  

Among other stocks, Coal India was among the worst performers in Nifty 50 after Nuvama Institutional Equities reduced the stock's target price to 542 rupees from 567 rupees earlier, and recommended investors to book profit on each rise. The brokerage has raised concern over the decline in the company's volumes and softening e-auction prices. 

On the upside, shares of paint and oil marketing companies were the major gainers today. The rise in these shares came after crude oil prices fell sharply in the international markets following reports of a possible resolution to disputes in Libya, which could lead to the resumption of oil production and exports. 

Further, the Organisation of the Petroleum Exporting Countries announced a phased increase in oil production starting in October, which could further weigh on global crude oil prices, Rahul Kalantri, vice-president of Commodities at Mehta Equities, said in a note today. "However, signs of recovery in the European economy and ongoing geopolitical tensions are providing some support to oil prices at lower levels," Kalantri added. 

Shares of Indigo Paints, Shalimar Paints, Berger Paints, and Asian Paints were the top paint manufacturing companies today. Shares of paint companies usually rise when prices of crude oil fall, as crude oil derivatives are key inputs for paint production. Of the total raw material costs incurred by paint manufacturers, 50-60% are from crude oil and its derivatives, as per a report by business daily Mint. Hence, a fall in crude oil prices will improve the profit margins of these companies as their input cost goes down. 

The current gains seen in paint stocks are due to the sentimental reaction and crude oil prices should stabilise around the current levels for a longer period for this to benefit the topline of these companies, a research analyst with a domestic brokerage said. Since crude oil prices are very volatile these days due to ongoing geopolitical tensions, it is too early to assess the impact it will have on domestic paint companies, the analyst said. 

A fall in crude oil prices is good for oil marketing companies as it will likely improve their margins. Shares of Hindustan Petroleum Corp, Bharat Petroleum Corp, and Indian Oil Corp were among the major gainers today. These companies have kept their retail prices, indexed to oil at $85 per barrel, unchanged over the last 28 months, as per a report by Emkay Global Financial Services, today. The brokerage believes that oil fundamentals are deteriorating sharply and the line of least resistance for oil prices is southward. "China 'the world's biggest consumer' is seeing shrinking oil consumption since early 2024. China's economic mess and rapid electrification present structural headwinds to oil prices," the brokerage added. 

Shares of select fast moving consumer goods and pharmaceutical companies attracted buyers today owing to their defensive nature. "Since global cues are weak and the domestic market is at its record market cap, conservative investors might be focusing on defensive stocks," Chokkalingam of Equinomics Research said. Owing to this, the Nifty Healthcare, Nifty Pharma, and Nifty FMCG were among the few sectoral indices in the green today. 

Shares of defence-linked companies ended higher on hopes of fresh orders for defence equipment or components from the government after it approved 10 capital acquisition proposals worth 1.45 trln rupees. Shares of Mazagon Dock Shipbuilders, Garden Reach Shipbuilders, and Cochin Shipyard were the top gainers in this sector. The Defence Acquisition Council, under the defence ministry, on Tuesday cleared a proposal to procure air defence fire control radars, Dornier-228 aircraft, and next-generation fast patrol vessels and offshore patrol vessels, among others.

ICICI Securities is positive on defence companies as the government is focused on boosting the capabilities of the air force, army, and coast guard. Further, companies in aero-engine components manufacturing are likely to benefit contingent on them obtaining the required approvals, the brokerage said in a report today. 

Shares of CCL Products (India) ended 15.3% higher and were the top gainer in the Nifty 500 index. The stock rose with huge volumes as some big investors could have bought the shares in the second half of the session, Ajit Sahu, research analyst with IDBI Capital said. Following the rise in shares, Redbox Global India posted on X, formerly known as Twitter, that the company is in focus as coffee prices are expected to rise owing to heatwave in Brazil.

"Poor growing conditions in Brazil, including drought and temperature changes, threaten global coffee supplies, potentially leading to higher prices," Redbox Global posted on X. However, coffee prices are already at an elevated level and they are not expected to rise further, Sahu of IDBI Capital said. 

* Of the Nifty 50 stocks, 18 rose, 31 fell, and 1 was unchanged

* Of the Sensex stocks, 12 rose and 18 fell

* On the NSE, 1,317 stocks rose, 1,401 fell, and 86 were unchanged

* On the BSE, 1,932 stocks rose, 2,019 fell, and 96 were unchanged

* Nifty PSU Bank: down 1.7%; Nifty IT: down 0.9%; Nifty Healthcare: up 0.8%

BSE                                               NSE
Sensex: 82352.64, down 202.80 points, or 0.3%      Nifty 50: 25198.70, down 81.15 points, or 0.3%

Edited by Deepshikha Bhardwaj

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