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Informist, Friday, Sep 13, 2024

By Noel John

MUMBAI – Headline equity indices are expected to hit fresh record highs next week ahead of the US Federal Open Market Committee's interest rate outcome on Wednesday. The market has already factored in a 25-basis-point cut in interest rates in the US after the country's August CPI came largely in line with expectations. The higher-than-expected initial jobless claims last week suggest that the Fed may implement larger rate cuts in future policy meetings, analysts said. 

Today, the Nifty 50 and the Sensex ended 0.1% lower each at 25356.50 points and 82890.94 points, respectively. Next week, the Nifty 50 index is expected to cross 25500 points, about 67 points higher than the all-time high of 25433.35 points it hit on Thursday. Support for the index is seen at 25250–25200 points. Analysts also said there could be volatility on Wednesday as investors are likely to rearrange their portfolios before the US Fed's policy announcement. 

Benchmark indices could see some profit-booking if the US Fed cuts interest rates by 25 bps, as it has already been discounted at current levels, Amish Shah, research analyst at Taurus Corporate Advisory Services, said. However, every dip will be used for additional buying by foreign investors as they have once again started to buy domestic shares after the European Central Bank kick-started the rate cut cycle on Thursday, Shah said.

Meanwhile, the Nifty 50 index could move past 25700 points if the US Fed surprises the Street with a 50-bps cut, Ruchit Jain, lead research analyst at 5paisa, said. The case for a 50-bps cut has been strengthened after US jobless claims for the week ended Saturday rose by 2,000 to 230,000, slightly higher than expectations of 225,000 claims. The probability of a 50-bps cut next week has risen to 45% from 28% on Thursday, while that of 25-bps fell to 55% from 72%, as per the CME FedWatch Tool. 

As most central banks have started cutting key rates, equities remain the next attractive alternative for foreign buyers, Shah said. Since countries such as the US and China are seeing a slowdown in their economies, India remains one of the few options for foreign investors, Shah added. 

Historically, over two decades, September has been a month of volatility, ICICI Direct Research said in a report today, adding that investors who bought during September's volatility have been rewarded handsomely. Any temporary breather from hereon would offer an opportunity to raise exposure to Indian equities, the brokerage added. 

Motilal Oswal Asset Management Co noted that China's stock market has again started to show weakness. The strength in the Chinese market during February to mid–May had sucked up foreign investors' liquidity from all over the world, including India, the fund house said in a note today. "From the peak in May, it (Chinese market) has dropped 10-15%. India has again started to get consistent FPI inflows," the fund house added.  

In India, shares of rate-sensitive sectors such as information technology, automobile, and banks will see some buying in the coming week, according to analysts. Shares of fast-moving consumer goods companies are also expected to gain during the volatility after the interest rate decision by the US Fed, they said. Today, the Nifty FMCG closed 0.7% lower, following its recent rally.  End

Edited by Avishek Dutta

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