Domestic markets are likely to sustain their momentum ignoring words of caution from experts, due to heavy buying by foreign portfolio investors. FPIs are likely to step up further buying, as the US Fed is likely to cut rates in the next meet, they said.
However, domestic economic IIP and inflation data were mixed.
Rajani Sinha, Chief Economist, CareEdge Ratings, said: “India’s industrial output growth increased to 4.8 per cent in July, following an upwardly revised growth of 4.7 per cent in the previous month. The moderation in growth of the electricity and mining sectors was balanced by an acceleration in the manufacturing sector. Consumption-related segments painted a mixed picture, as the output of consumer durables grew by 8.2 per cent, while non-durables output remained in the contractionary zone, falling by 4.4 per cent. An improvement in kharif sowing amidst a good monsoon bodes well for private consumption demand. Overall, a sustained and meaningful improvement in consumption and private capex remains critical for the performance of industrial activity.
Gift Nifty at 25,390 signals a flattish to positive opening for domestic markets. Despite a strong closing in the US overnight, Asian stocks are ruling mixed in early trade on Friday.
According to Vaibhav Porwal, Co-founder, Dezerv, the Nifty50 and the BSE Sensex touched new all-time highs. “Against all odds, retail investors have got it spot-on since the covid lockdown days,” he said, adding that there are a few things investors need to watch out for.
“Since the markets hit the bottom during covid, right up until the 2024 Lok Sabha elections, the Value and Momentum factors dominated the market. However, after the election results came out, Quality is making a comeback. We also saw an elongated period of elevated interest rates, which is expected to come to an end next week,” he said.
Further, in this market rally, many low-quality stocks have also seen sharp rallies, pushing valuations to levels not seen since previous peaks. This environment, driven by fear of missing out (FOMO), leads investors to make quick decisions without thorough research and risk management, he cautioned, and advised “Investors should first review their existing investments to identify under-performers and consider rebalancing their portfolios to focus on high-quality companies with strong fundamentals.”
The RBI is unlikely to cut interest rates immediately, despite the softening of inflation, said analysts.
Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers, said: India’s retail inflation at 3.65 per cent in August 2024 showed little change from the previous month. Recent inflation readings have consistently come in below the Reserve Bank of India (RBI)‘s projections, indicating a softening trend. Meanwhile, in the US, inflation has hit a three-year low, and with signs of a cooling labour market, a rate cut by the Federal Reserve in September 2024 seems inevitable.
“Despite the easing of inflationary pressures, lower-than-expected GDP growth for the quarter ending June 2024, and the likelihood of a rate cut by the US Fed, we expect the RBI to maintain its current policy rate for now. However, the central bank’s stance and forward guidance are likely to turn more dovish, signalling potential future easing,” Hajra said.