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Informist, Monday, Sep 9, 2024

By Anjana Therese Antony

MUMBAI – Given the absence of major domestic triggers, the Indian equity market may crawl higher till the outcome of the US Federal Reserve's monetary policy meeting is known on Sep 18, analysts said. While intermittent corrections are likely, a major fall is not expected as India remains a good bet among emerging markets, research analysts at six broking firms said. 

"Backed by strong macros, policy continuity, capex-led growth, and favourable demographics, India is an island of growth amid global uncertainty and remains on course to become the 'global growth engine'," Nitin Rao, chief executive officer of InCred Wealth, said in a quarterly newsletter. Rao also said India's equity market continues to be supported by buoyant domestic institutional inflows and retail participation, while valuations appear to be slightly "elevated", especially in the broader market.

Though India's valuation remains expensive, experts say the country's strong growth prospects will keep investors attracted. A few analysts said that for valuations to reach a reasonable level, a 20-25% correction from current levels would be needed. 

Today, the Nifty 50 closed over 84 points or 0.3% higher at 24936.40 points and the BSE Sensex ended nearly 376 points or 0.5% higher at 81559.54 points. Immediate support for the Nifty 50 is pegged at 24850-24900 points for Tuesday and resistance is seen at 25000-25150 points, according to technical and derivatives analysts at three different broking firms. 

A fall in volatility index India VIX also indicates that the near-term nervousness in the market is slowly fading. The index had risen above 23 in early August amid worries of a recession in the US, unwinding of yen carry trades, and uncertainties related to West Asia. The fear gauge closed 6.4% lower today at 14.2375.

On the sectoral front, fast-moving consumer goods stocks are likely to extend gains on Tuesday, according to analysts. Though valuations remain expensive, the focus will now be on the festival season, which could boost sales, two analysts tracking the sector said. A revival in rural demand and a good monsoon "will also make things better" for FMCG players in India, one of the analysts said. The market has now factored in likely price hikes that these companies may adopt in the coming months due to rising raw material costs. 

FMCG stocks started looking up in June, after the government announced various schemes in the Union Budget to boost the rural economy. These stocks had been underperforming for at least a year due to a weak monsoon and a decline in sales volume. 

Though banking stocks led the gains today, analysts do not expect the sector to make major gains in the short term. Valuations of banks remain at comfortable levels, but there are concerns about a slowdown in growth in deposits and higher credit costs, which increases the risk of earnings downgrades, a banking analyst at a domestic broking firm said. Today, the Nifty Bank closed over 1% higher, with eight of its 12 constituents seeing gains.

With investors likely to focus on developments in global markets, analysts said global economic data, especially from the US, will primarily determine the degree and direction of the domestic market's movement in the coming sessions. The US Consumer Price Index for August, due on Wednesday, will be widely tracked. Analysts said there would be some caution among global investors, including those in India, ahead of the US inflation data.

While markets have broadly priced in a 25-basis-point rate cut by the US Fed, concerns that inflation could remain stubborn and hence delay further rate cuts are keeping market players on tenterhooks. A larger rate cut this month, which was highly anticipated earlier, is now seen as less likely.   

Among key global economic data for August, scheduled for release on Tuesday, are inflation data for Germany and the UK's monthly unemployment data. Also, the European Central Bank will announce its decision on interest rates on Thursday after Indian market hours. Jefferies forecasts a 25-basis-point rate cut, which will be in line with market expectations, Dow Jones reported today.  End

Edited by Avishek Dutta

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