Domestic markets are expected to open on a negative note amid weak global cues. Asian stocks are in a sea of red, led by the Japanese Nikkei, which crashed over 6 per cent after falling over 10 per cent in the last few days. Korea, Taiwan, and Australian markets are down between 2.5 per cent and 7 per cent.

Gift Nifty at 24,360 signals a gap down opening of over 300 points for Nifty. 

Analysts expect the unwinding of yen carry trade, geopolitical tension, and a perceived slowdown in developed economies to impact domestic markets. 

Vikram Chhabra, Senior Economist, 360 ONE Asset, said, “The Bank of Japan’s decision to raise interest rates has propelled the yen to its strongest level against the US dollar since March. This has triggered the unwinding of the yen carry trade, which involved borrowing cheaply in yen and investing in higher-yielding currencies or assets. As a result, equities and other asset prices have become more vulnerable. Additionally, recent disappointing US jobs data has exacerbated the situation, leading to a global sell-off in equities. Investors should expect increased market volatility in the near term.”

Milind Muchhala, Executive Director, Julius Baer India, said: “We have been seeing mixed activity by the FPIs in the recent past, with bouts of buying and selling, a trend which is likely to continue for some more time. Their activity will remain influenced by various factors, including the performance of the global equity markets, the movement of dollar index, incremental geopolitical events, and opportunities in the Indian markets considering slightly elevated valuation levels.”

While the US Fed provided mixed commentary on its rate cut path, the recent weak job data, coupled with the benign inflationary environment, will definitely strengthen the case for a rate cut in September, he said, adding that the key thing to watch out for will be the path going ahead in terms of whether there will be more rate cuts during the calendar year or they get pushed out to next year.

Analysts, however, expect the domestic market to continue in a consolidation phase. They see value buying emerge, especially in large caps, once the current bout of selling is over.

Vaibhav Porwal, Co-founder, Dezerv. Said: “Weaker than expected employment data and a slowing economy have ensured that the US Fed is expected to cut rates in September. The more important question here is the extent of the cut. Currently, there is strong commentary that is being built for maybe a 50 bps cut in interest rates, he said.

“FII flows into India should increase due to several factors. Firstly, India’s economy is performing better than many global peers, making it an attractive destination for investors. Secondly, with the risk-free rate expected to come down in the USA, investors will likely seek better returns elsewhere, including India. Thirdly, the government’s robust fiscal discipline could lead to a rating upgrade for India, enhancing its investment appeal. Additionally, valuations of large-cap stocks, where FIIs typically invest, are currently at reasonable levels. Lastly, uncertainties like elections and budget announcements are behind us, providing a more stable investment environment,” he said.

According to IDBI Capital, the current Nifty-50 valuation (1 yr fwd EPS) has moved to +1 STD of the last 10-year mean. The Indian market is expected to consolidate at current levels as earnings align with the elevated valuations. 

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