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Informist, Thursday, Sep 19, 2024

By Anjana Therese Antony

MUMBAI – A deeper rate cut in the US lured investors towards equities, but there were worries that the higher-than-expected rate reduction may indicate an "intangible" issue with the US economy. Even though US Federal Reserve Chair Jerome Powell said he does not see an elevated likelihood of an economic downturn, different narratives started to take shape after the rate cut announcement. Some experts said the US economy has been showing signs of softening with weakening labour market and economic activities. Investors sold equities to book profits after the market hit a new record high earlier in the day.

In a landmark policy shift, the US Federal Reserve reduced the federal funds target range by 50 basis points to 4.75-5.00% late Wednesday, the first reduction in about four years. While the market has completely factored in a 25-bps cut, some analysts had said that a deeper trim would hint at a slowdown in the US. The Fed will get pushed into deeper cuts and is expected to reduce rates by another 75 bps in Oct-Dec and 125 bps in 2025, Bank of America said in its report. Some analysts, on the condition of anonymity, said the Fed might have fallen behind the curve in cutting rates, which is why it went for a large-scale reduction. 

"For those who thought the 50-bps cut was a good indication for the US, my view is that this clearly hints at a slowdown... The US has been showing signs (of slowdown), but prime focus on inflation made people unaware of the reality," a research analyst at a domestic broking firm said. 

Today, the benchmark Nifty 50 and Sensex rose over 0.7% each to hit their fresh all-time highs of 25611.95 points and 83773.61 points, respectively. The Nifty 50 then closed 0.2% higher at 25415.80 points and the Sensex ended 0.3% higher at its record closing high of 83184.80 points. The immediate support for the index is pegged at 25400-25370 points and resistance is 25500-25600 points in the near term. 

Meanwhile, the medium-to-long term bias is expected to be positive, especially as India is considered a good bet among emerging markets, as it has been giving better returns compared to its peers.  "Weakening dollar and falling interest rates in the US are generally positive for emerging markets like India. FPIs (foreign portfolio investors) have already started buying Indian equities in the past few weeks despite concerns on valuations. We believe resilient Indian macro should support its equity valuation," Jitendra Gohil, chief investment strategist at Kotak Alternate Asset Managers, said in a note today.

Select information technology stocks, which surged and led the gains in early trade, erased gains in the first half. Analysts said IT stocks rallied recently, especially on the US rate cut optimism. They said there is less room for a major upside for these stocks, especially due to expensive valuation, weak deal wins, and no demand recovery seen in the coming quarters. The Nifty IT index closed 0.3% lower, after being the top sectoral gainer in early trade. 

On the other hand, investors turned their focus to fast-moving consumer goods stocks today, a safe haven for investors when there are worries of economic turmoil. Expectations of a robust festive season in the coming months, better sales volume and corporate earnings, rural demand recovery, and the government's push to drive rural consumption, have been boding well for these stocks, a research analyst tracking the sector at a domestic broking firm said. 

Among specific stocks, IIFL Finance closed 6% lower at 495.95 rupees on the National Stock Exchange amid speculations about a possible rating downgrades due to the Reserve Bank of India's ban on gold loans. A local rating agency has informed the financier about a possible rating change to 'AA-' from 'AA', as the regulatory ban on its gold loan business remains unresolved, Bloomberg reported, citing sources. 

Vodafone Idea and Indus Towers extended losses after the Supreme Court today rejected a batch of curative petitions filed by telecommunication companies, including Bharti Airtel and Vodafone Idea, against the apex court's earlier order on adjusted gross revenue calculations. This is expected to reduce Vodafone Idea's capability to clear dues to Indus Tower. Meanwhile, shares of Bharti Airtel closed 0.6% higher after hitting a record high following the apex court's order.

Shares of NTPC closed 2.4% higher and emerged as the top gainer on the Nifty 50 after its subsidiary NTPC Green Energy filed draft papers with the Securities and Exchange Board of India for an initial public offering. 

* Of the Nifty 50 stocks, 26 rose and 24 fell

* Of the Sensex stocks, 20 rose and 10 fell

* On the NSE, 906 stocks rose, 1,882 fell, and 78 were unchanged

* On the BSE, 1,246 stocks rose, 2,734 fell, and 95 were unchanged

* Nifty Private Bank: up 0.6%; Nifty FMCG: up 0.6%; Nifty Media: down 2.5%

BSE                                               NSE
Sensex: 83184.80, up 236.57 points, or 0.3%       Nifty 50: 25415.80, up 38.25 points, or 0.2%

End

US$1 = 83.68 rupees

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Tanima Banerjee

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