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This week, domestic equities are expected to consolidate at a higher zone. The markets have witnessed a sharp run-up of 8 per cent over the last one month, post-election results and in the run-up to the union budget. Going forward, we expect more of stock and sector-specific action as the market starts taking cues from April-June quarter earnings. On the macro front, investors will look out for inflation data to be released by India, the United States, and China.
Last week, Nifty touched a new high of 24,400 while Sensex breached the 80k mark on the optimism around a rate cut by the Federal Reserve, robust domestic macro data and healthy Q1 business updates. Nifty ended the week 313 points higher (1.3 per cent) at 24,324 levels. Broader markets outperformed with Midcap100 and Smallcap100 up 2.4 per cent and 3.4 per cent respectively. Pharma and IT were the biggest gainers, up around 4 per cent each.
A lot of optimism is building around the upcoming budget, which is expected to be growth oriented with some populist measures. Focus on core themes like defence, railways, infrastructure spending, housing, and manufacturing is likely to continue. The Finance Minister is also expected to announce measures to boost rural economy.
The IT sector saw buying ahead of Q1FY25 results, which will start pouring from this week onwards. Niche sectors like paper too witness a rally on the buzz surrounding price hikes. Defence sector saw a smart run-up after data released showed India registered 16.8 per cent growth in defence production in FY24, the highest ever. In addition, expectation of continued focus in the upcoming budget and strong order inflows supported buying interest in this sector.
Private banks saw healthy action after HDFC Bank released its Q1FY25 shareholding data, wherein the foreign institutional inflow ownership has declined to 54.8 per cent, below the 55 per cent mark, indicating greater domestic inflows.
After two months of continuous selling, FIIs finally turned buyer in the month of June, to the tune of Rs 2,000 crore. This buying trend continued in the first week of July as well with FIIs having bought Rs 5,600 crore worth of equity.
Sentiments got a further boost in the hope of a rate cut as the recent data releases indicate the softening of the US economy. Markets also cheered the dovish commentary from US Fed Chair Jerome Powell, which reflected in US markets too touching new highs.
Optimism surrounding a favorable Union Budget, stable inflation, and falling current account deficit, indicate an uptrend in domestic economic growth. Further, anticipated $25-30 billion inflows from the inclusion of Indian government bonds in the JP Morgan EM Bond Index have fuelled market sentiment. Overall we expect Nifty to continue its steady upward trend in the long run.
(The writer is head of Retail Research, Motilal Oswal Financial Services Ltd)