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Informist, Monday, Dec. 16, 2024

By Anjana Therese Antony

MUMBAI – The decline in the Indian stock market is likely to extend to Tuesday as investors remain cautious ahead of the US Federal Reserve's monetary policy announcement due Thursday. This along with concerns about expensive valuations of domestic equities and lower foreign inflows are likely to weigh the market down in the near-to-short term, analysts said. Investors also await the policy announcements of the Bank of Japan and the Bank of England, both also due on Thursday. 

The US Fed is widely expected to cut interest rates by 25 basis points to 4.25-4.50%. Global investors will closely watch the apex bank's outlook on future rate cuts and inflation. The Fed Chairperson Jerome Powell, has on multiple occasions, said that the bank is not in a hurry to cut interest rates further. However, the recent rise in US unemployment data and benign inflation has raised hopes that the Fed may reduce rates further. The US Fed had surprised global investors with a 50 bps cut in the federal funds target range in September and then trimmed the rate by 25 bps in November. 

Amid the caution, the Nifty 50 closed 0.4% lower at 24668.25 points and the BSE Sensex ended 0.5% lower at 81748.57 points. The support for the 50-stock index is seen at 24600-24500 points in the near term and resistance at 24720-24790 points. The near-term nervousness was evident in the fear gauge – India VIX – closing 7.4% higher. The volatility index ended in the green after falling for six straight sessions. 

The Fed's decision will keep Indian IT stocks in focus as these companies have huge exposure to the US market, with more than half of their revenue earned from clients in the world's largest economy. The monetary policy outcome as well as the likely policies of President-elect Donald Trump will be closely watched as he takes charge as the 47th president in January. Analysts said a 25 bps cut has been factored in and any lack of clues about future interest rate cuts could disappoint global investors, including those in India, a research analyst at a bank-sponsored domestic broking firm said. 

For the medium term, investors are increasingly betting on the government's capital expenditure cycle, which is expected to pick up in Oct-Mar. A pick-up will give a major push to defence, construction, and engineering companies, analysts said. Order inflows from the government started and are a sign of relief for defence companies, which saw lower orders in the first half of the current financial year, an analyst tracking defence companies said, adding that this will gain further momentum in the coming months. 

Among other beneficiaries of the government's capital spending cycle are cement companies, which have felt the heat of the slowdown in orders due to General Elections, muted demand, and an extended monsoon. Cement companies are expected to hike prices once the infrastructure activities gain pace and demand increases, analysts said. Most cement stocks, which rose in the last 2-3 weeks on renewed hopes of higher demand, took a breather and closed slightly lower on Monday. 

In the case of banks, concerns persist about a slowdown in the growth of loans and deposits, though recent data from the Reserve Bank of India showed that the gap between the growth in the two parameters has become almost nil. "Given continued deposit shortage and decreasing CASA (current account saving account), banks remain vulnerable to margin pressure," Nuvama Institutional Equities said in a report. While loan and deposit growth appear to have converged at 10.7% on year as of Nov. 29, the deposit deficit remains a problem for the industry, the broking firm said. ICICI Bank, State Bank of India, and HDFC Bank, along with a few public sector banks appear to be better placed to face the challenge in deposit growth, it said. 

Among specific stocks, Abbott India will be in focus as the company's Chief Financial Officer Sridhar Kadangode, resigned effective Feb. 26. The stock closed 1.4% lower at INR 28,251.25 on the National Stock Exchange Monday, down for the fifth straight session.  End

Edited by Saji George Titus

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