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Informist, Wednesday, Sep 18, 2024

By Anjana Therese Antony

MUMBAI – The much-awaited monetary policy decision of the US Federal Reserve today will determine the direction of the Indian equity market on Thursday. Market participants are primarily expected to look for comments on future decisions on interest rates by the US central bank, analysts said.

However, the market is divided over the quantum of rate cut by the US Federal Open Market Committee. Some participants expect a 25-basis-point reduction, others anticipate a 50-bps cut, and few others expect no rate cuts at all. 

Analysts said a 25-bps trim has already been factored in by the market, in which case Indian equities may see muted gains or even profit booking. "The market has rallied a lot, especially on the rate cut optimism...I will not be surprised if investors take out some profits in the next session and the market can rebound from such losses within a short period of time," a research analyst at a domestic broking firm said.

Also, there is increasing optimism that the Fed may go for a 50 bps cut, which is, however, considered a negative sign by a few experts. "I don't think there are any major exigencies that the Fed has to go for an aggressive rate cut," Dhananjay Sinha, co-head of equities at Systematix Group, said.

A large cut could also send a message to the market that the Fed would be capitulating to a scenario, indicating that there is a deeper problem in the US economy, which is not the case now, Sinha said.

Meanwhile, a 50-bps cut is expected to push the Indian stock market higher at a faster pace, compared to the previous few sessions where it saw muted gains and periodic profit taking. When it comes to the case of no rate cuts, analysts said that the market will see a sharp correction, though it will recover these losses within a couple of sessions. "The market will have to discount whatever it has factored in if the result is not in line," the research analyst at the domestic broking firm said. 

After hitting new record highs today, benchmark indices fell prey to profit booking in the second half of the session. The Nifty 50 and Sensex ended 0.2% lower each at 25377.55 points and 82948.23 points, respectively. The Nifty 50 hit a new record high of 25482.20 points and the Sensex reached a lifetime high of 83326.38 points.

The near-term support for the Nifty 50 is seen at 25200-25000 points and resistance would be 25500 points. In case of a negative surprise, the index may even fall to 24800 points, a technical and derivatives analyst at a domestic broking firm said. 

"While easing US interest rates are directionally positive for equities in general, we should keep in mind interest rates are just one variable in a complex adaptive system that determines the direction of Indian equity markets," adds Anoop Vijaykumar, head of research at Capitalmind Financial Services, said in a report. 

If the Fed goes for a deeper rate cut, analysts believe companies having higher exposure to the US, including those in the information technology space, will gain on Friday. Today, caution ahead of the Fed meet outcome made investors book profits in these stocks, which led to the sell-off in the sector. The Nifty IT was the major sectoral laggard and closed 3.1% lower, with all constituents in the red. 

Some analysts also said they continue to prefer stocks in the consumer space, especially on green shoots of recovery in rural demand and the government's push to drive growth in the rural space. They also prefer automobile stocks, especially of companies in the two-wheeler space, with likely strong festival season in the coming months expected to boost sales.  End

Edited by Aditya Sakorkar

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