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Informist, Monday, Sep 16, 2024

By Anjana Therese Antony

MUMBAI - While the overall bias towards the Indian stock market remains positive, analysts believe the upside will be limited till the outcome of the US Federal Reserve's interest rate announcement on Wednesday. Analysts said they do not expect major gains in the domestic market if the US Fed cuts interest rates by 25 basis points, which is already priced in. In the case of a 50-bps cut, the market may rise more, they said. 

"A major worry would be if the Fed does not cut rates at all. In that case, the market can fall up to around 2%," a research analyst at a domestic broking firm said. According to the CME FedWatch Tool, there is a 59% possibility that the US Fed will cut rates by 50 bps from 43% on Friday. 

It is also expected that the market may take a breather after the likely 25-bps rate cut in the US, another analyst at a broking firm said. Valuations remain expensive and there are worries that inflation may rise above the Reserve Bank of India's 4% target due to the above-normal monsoon. Excessive rains could cause damage to crop and thus push food inflation higher. 

The benchmark Nifty 50 and BSE Sensex have risen nearly 2% each in the last seven days. Today, both the indices ended 0.1% higher at their record closing highs, with Nifty 50 ending at 25383.75 points and the BSE Sensex at 82988.78 points. The support for the 50-stock index is pegged at 25300 points and resistance at 25400-25425 points for Tuesday. 

On the sectoral front, analysts said fast-moving consumer goods stocks may extend losses to Tuesday on the back of the hike in edible oil import duty. While the government raised basic customs duty on crude palm oil, soybean oil, and sunflower seed oil to 20% from nil, that on refined palm oil, soybean oil, and sunflower oil was hiked from 12.5% to 32.5%. Some analysts said this could hit FMCG companies' raw material costs. Among major laggards in the FMCG pack were Britannia Industries and Hindustan Unilever, which closed 1.1% and 2.3% lower, respectively. 

It is also likely that shares of information technology companies may rise in the near term if the US Fed goes for a rate cut this week. Analysts said there are green shoots of recovery in demand seen for the IT services space. "We also continue to hear that Tier-I Indian IT services vendors are likely winning a higher share of the current demand, given broader offerings and deal structuring flexibility," Incread Equities said in its research report. The broking firm upgraded its rating on Infosys and HCL Technologies to 'add' from 'hold' earlier, driven by modest earnings revision. Today, the Nifty IT closed slightly lower after moving up in the last two straight sessions on optimism over rate cut in the US. 

On the global front, investors also await the Bank of England's monetary policy meeting minutes on Thursday and Japan's monetary policy announcement on Friday. BoJ policymaker, Naoki Tamura, reportedly said the central bank must raise interest rates by at least 1% by the second half of the next fiscal year. BoJ is expected to leave its benchmark interest rates unchanged this time, but more than half of the economists polled by Reuters expect a further tightening by the central bank before the end of this year.  End

Edited by Vandana Hingorani

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