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Domestic markets are likely to consolidate in run-up to the key event of the US Federal Reserve policy announcement on September 18, with intermittent volatility on account of various economic data releases. This week, India’s CPI inflation and industrial output will be of interest, along with European Central Bank interest rate decision, Japan and United Kingdom GDP data and China inflation and US core inflation.
After three consecutive weeks of gains, Nifty declined last week amid uncertain global cues. The index fell 384 points or 1.5% to finally close at 24,852 levels. The broader market saw profit booking with Midcap100 and Smallcap100 down 1.3% and 0.2% respectively. The fall in the smallcaps was marginal due to stock-specific buying.
Except for consumer retail, all sectors ended in the red, with most down 1-5%. In fact, domestic equities experienced one of their most significant single-day declines on Friday in the last one month, driven by concerns over a potential slowdown in the US labour market.
The drop was spurred by disappointing job openings data in the US, which dampened market sentiments globally. Investors also turned cautious ahead of the US unemployment data which got released over the weekend. These will offer insights into the magnitude of the rate cut in the upcoming Fed meeting.
Defence stocks were in momentum as the government approved ten capital acquisition proposals amounting to Rs 1.5 lakh crore. Oil marketing companies and few other sectors like paints, cement etc, saw buying interest as oil prices fell to nearly one-month low on account of subdued demand and production boost by OPEC+.
On the domestic side, GST collections surged 10% year-on-year to Rs 1.75 lakh crore in August. However, April-June quarter GDP and August PMI numbers came in slightly below estimates, which could induce volatility. Still, World Bank and Moody raised India’s GDP growth forecast while S&P retained its estimates.
After witnessing a run-up of 6% over the last one month, the market has taken a pause and is trading at higher zones with every dip being bought. We expect this consolidation to continue in the near term with intermittent volatility due to global nervousness ahead of the Fed interest rate decision. However, with the start of the festive season, sectors like consumer discretionary, retail, hotel, and jewellery could remain in focus.
(The writer is head of Research, Wealth Management, Motilal Oswal Financial Services Ltd)