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Informist, Wednesday, Sep 4, 2024

By Anshul Choudhary

MUMBAI – Benchmark equity indices are seen slightly lower on Thursday if global cues remain negative. Further weakness in global markets may push investors to sell more, after sitting on profits post a 14-session winning streak for the Nifty 50 that ended today.

The Nifty 50 snapped its winning streak, ending 0.3% lower at 25198.70 points. The fall came after global markets declined as fears of a slowdown in the US economy emerged after data on the country's manufacturing activity disappointed investors.

After the manufacturing purchasing managers' index for August came in lower than expectations, the CME FedWatch tool showed that the odds of a 50-basis-point rate cut in the US in September increased to 43% from 30% a day ago. It is widely expected that the US Federal Reserve will cut interest rates in the September meeting by 25 bps at least, but expectations of deeper cuts have been building up after weak US employment data in July led to fear of a recession in the country.

Fear of a slowdown in the US, which may hurt the prospects of a soft landing, could push investors to book profits on Thursday, but analysts said Indian investors' reactions would depend on the performance of global markets. Having said that, analysts do not expect a sharp fall, with the first support level for the Nifty 50 seen at 25000 points, about 0.8% lower than today's close. Even if it falls more, analysts advise investors to remain positive as long as the Nifty 50 manages to close above 24800-24850 points.

This optimism comes from strong domestic inflows, which have largely absorbed any fall this year. "Our historical analysis to judge the market may not stand as the perception towards equity is changing across India...the culture around equity is changing," Asutosh Mishra, head of research at Ashika Stock Broking, said. All the domestic players, including retail and high net worth individuals, have contributed to the recent gains and this trend is likely to continue, he said. 

The trend for foreign inflows is not as rosy. Foreign investors' concerns around expensive valuations and the unwinding of yen carry trades led to flows into India slowing down significantly last month. Foreign portfolio investors net bought equities worth $1.39 bln in August, down from over $3 bln each in July and June. The unwinding of yen carry trades will continue to affect flows into India as flows from Japan are the second highest after those from the US, said Sunil Jain, who covers quantitative and alternates at Elara securities. However, he expects that this impact will be limited because, with the Chinese economy struggling, investments are largely going into the US, Japan, and India.

Further, the sharp fall in oil prices on Tuesday may continue to lead to stock-specific reactions. This is positive for oil marketing companies and others such as paint and tyre makers, who use crude oil as a key raw material. "From the macro perspective, this could bring down our oil imports bill and reduce input cost for companies...However, the sustainability of this fall needs to be watched," Teresa John, economist at Nirmal Bang Institutional Equities, said.

On Tuesday, Brent crude November futures fell nearly 5%. At 1706 IST, the contract was at $74.29 per barrel, down from $77.52 on Monday. The sharp fall came after reports that disputes in Libya, which had halted crude production, might be resolved soon, which will increase supply.

Paint makers were some of the major gainers today, with shares of Asian Paints rising 2.4%, and those of Grasim Industries, which entered the paint business last year with its brand 'Opus', gaining nearly 2%. Among others, shares of Indigo Paints rose 6% and those of Berger Paints ended 3.6% higher. If crude oil prices remain at similar levels for an extended period, they could prove beneficial for Indian companies, which might lock in these prices for the future, Mishra of Ashika said.  End

Edited by Avishek Dutta

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