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Informist, Friday, Sep 6, 2024

By Anshul Choudhary

MUMBAI – Analysts expect the benchmark indices to be muted next week even if the US non-farm payroll data for August point to a resilient job market. If the non-farm payroll report, due to be released later today, is stronger than expected, it would bolster the view of a 25-basis-point interest rate cut at the US Federal Open Market Committee's meeting this month, but analysts said that had already been factored into stock prices.

Economists polled by The Wall Street Journal expect the report to show an addition of 161,000 jobs in August, which would bring down the unemployment rate to 4.2% from 4.3% in July, Dow Jones reported. The jobs report is due out at 1800 IST. The CME Fedwatch tool showed nearly 60% probability of a 25-bps rate cut and around 40% probability of a 50-bps rate cut.

However, lower-than-expected payrolls, which would fuel concerns about a recession in the US, could push domestic investors to book profits. Profit taking is seen as a big risk right now as the Nifty 50 has witnessed a 14-session rally that only just ended Tuesday.

"For now the data is not pointing to a major slowdown (in the US) and we may see some time-wise correction going forward... but if deep recession becomes a reality, markets could fall 15%," an equity strategist at a domestic brokerage said.

Today's fall of over 1% in the benchmark indices came as a surprise to many analysts, who said it was possibly due to risk aversion ahead of the jobs report. The Nifty 50 and the BSE Sensex ended at 24852.15 and 81183.93 points, respectively. Despite today's fall, technical analysts remain positive and expect the Nifty 50 to stay above 24750-24800 points, and even rise to 25300 points if the jobs report does not disappoint the market.

In case the global markets see a correction after the jobs report is released, the Nifty 50 could follow suit. Jatin Gedia, technical analyst with Sharekhan, said the Nifty 50 may fall to 24000 points if it breaches its support levels after the jobs report. The fall could be sharper in mid-cap and small-cap stocks, where analysts said several stocks are trading at expensive valuations with some above their 10-year historical averages.

With the US economy in focus, information technology may react sharply next week. Lower interest rates are seen as a positive for the sector and could help to revive demand for IT services, but an indication of a slowdown in the US would be taken as a negative by investors, analysts said. The Nifty IT index closed nearly 1% down today.

Banking stocks were among the major losers today, with the Nifty Bank down nearly 2% and the Nifty PSU Bank down 3.6%. The asset quality of public-sector banks is now normalising, and may lead to higher credit costs, an analyst with a Mumbai-based brokerage house, who covers the sector, said. The analyst pointed out that rising credit costs and slower deposit growth are likely to slow down banks' growth and may even lead to downgrades.

Most carmakers may continue to fall as demand remains lacklustre, leading to high inventory levels. "The cyclical nature of the industry, combined with banks becoming cautious due to stress in the MSME (micro, small, and medium enterprises) and MFI (micro finance institutions) sectors, has contributed to the slowdown. Additionally, higher interest rates are making vehicle financing more expensive, impacting demand," Krishna Appala, senior research analyst at portfolio management services Capitalmind Research, said.

Analysts have now pinned their hopes on the upcoming festival season and rising demand from rural areas, which could help to reduce the inventory levels. Such expectations may limit any downside in automobile stocks.  End

Edited by Rajeev Pai

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