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Informist, Thursday, Sep 5, 2024

By Anshul Choudhary

MUMBAI – Benchmark equity indices are expected to be muted on Friday ahead of the US non-farm payrolls report for August. All eyes will be on global markets, which are eagerly waiting for cues that may help assess the health of the US economy.

US economic indicators hold importance right now as the US Federal Reserve's next meeting is just around the corner. Although it is widely expected that the US rate-setting committee will cut rates by 25 basis points on Sep 18, some market participants see a 50-bps cut as a possibility. The US jobs report on Friday will help investors assess whether the US economy is actually slowing down faster than expected.

According to a survey by The Wall Street Journal, the US is expected to have added 161,000 jobs in August, helping the unemployment rate decline to 4.2% from 4.3% in July. The July report, released at the beginning of August, had sparked concerns of a recession, which along with unwinding of yen carry trades at that time, had led to sharp sell-off in global markets. "If the US economy adds fewer than 100,000 jobs and the unemployment rate ticks higher, the Fed is likely to respond with a bigger-than-usual 0.5 percentage point rate cut...," James Knightley, economist at ING said, as quoted by Dow Jones.

A recession in the US is expected to have ramifications for India as well. "For now, the slowdown in the US is not a risk but if any major slowdown comes in the US, it will be negative for IT (information technology)," Sanjeev Hota, head of research at Sharekhan, said. This is important as IT companies account for 14% of the Nifty 50, the second highest after financial services.

These concerns put Indian stocks at a risk of investors booking profits, as they are sitting on significant profits – the Nifty 50 has risen nearly 16% this year, while broader market indices have risen nearly 30%. Hota of Sharekhan said investors might book profits if the US Fed cuts interest rates by just 25 bps, as that has been factored into stock prices.

High stock valuations also put the market at risk if global cues indicate a recession in the US, or the US Fed's commentary does not indicate more rate cuts after September, analysts said. However, valuation-related concerns are mostly around the mid-cap and small-cap space, where several stocks are trading significantly above their 10-year averages.

Having said that, analysts expect strong domestic flows to help recover from any possible correction on Friday. For now, analysts expect the Nifty 50 to find support at 25000 points. If the index moves higher, the first resistance is seen at 25300-25350 points, followed by 25500 points.

Shares of fast-moving consumer goods companies declined today amid reports that these companies might raise product prices owing to an increase in input costs. Analysts refuted concerns of higher prices hurting growth as the base for FMCG companies is low to begin with. Analysts said they see this development as positive for the sector as higher prices would help in garnering more revenue.

This confidence stems from expectations that better rains will improve income levels of the rural population, which will help demand in those areas recover. "Kharif sowing is higher than last year and after an above-average monsoon, reservoir levels have improved substantially," HSBC Global Research said in a note today.  End

Edited by Avishek Dutta

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