The BSE Sensex being monitored
Credit: PTI Photo
This week, we expect markets to consolidate at higher levels due to mixed global cues and absence of any major domestic triggers. Moreover it’s a truncated week on account of the Independence Day holiday on August 15. We will also witness the last set of Q1 results from several mid and small companies. On the economic calendar front, Retail inflation data of United States and India will be key to monitor. GDP data of Japan, United Kingdom and European Union will be announced this week.
Over the past few days, Nifty has been volatile on account of weak global cues, although there was some recovery towards the end of the week. India Volatility Index descended, showing an easing of cautiousness and improvement in sentiments. Despite that, Nifty ended the week with a loss of 350 points (1.4%) at 24,368 levels. Broader markets witnessed similar selling pressure with Midcap100 and Smallcap100 down 1.3% and 2.1% respectively. Except for defensive sectors like FMCG and Pharma, all sectors witnessing profit booking.
Globally, markets witnessed a sell-off on account of concerns of a slowing US economy. Further, a sharp rate hike by Bank of Japan leading to fears of unwinding of yen carry trades, and escalating tensions in the Middle East, dented sentiments. However later in the week, US unemployment data came in better than expected while BoJ gave assurance that it will not hike rates till the markets remain unstable, leading to some recovery in the markets.
Continued FII selling dampened market sentiments. Over the last 13 trading sessions, FIIs were buyers only on two days while they have cumulatively sold almost Rs40, 000 crore worth of equity during this period.
On the domestic front, the Reserve Bank of India kept interest rates unchanged at 6.5% due to high food inflation, which continues to pose a challenge. A degree of relief in food inflation is expected from the pick-up in the south-west monsoon, healthy progress in sowing and softening global food prices in July 2024. The RBI maintained its real GDP growth projection for FY25 at 7.2%, making it the fourth consecutive year of 7%+ growth. These optimistic expectations for real GDP growth provide the RBI room to sustain a “higher for longer” stance.
The corporate earnings scorecard for 1QFY25 has been in line so far, with heavyweights such as HDFC Bank, Tata Motors, ICICI Bank, Maruti, and TCS driving the aggregate.
India stands strong with the support of healthy macros, strong participation from domestic retail and institutional investors, and in-line Q1FY25 numbers so far. The combination of ~7% GDP growth and ~15% Nifty earnings CAGR in Fys 24-26, stable currency, moderating inflation, and buoyant retail participation may keep sentiments strong. We believe that any correction in Indian equities should be an opportunity for long-term investors to accumulate good quality stocks.
(The author is head of Retail Research, Motilal Oswal Financial Services Ltd)