As bulls made a smart comeback on Dalal Street, the benchmark equity indices BSE Sensex and NSE Nifty rose over 8 per cent each in the last one month. Gains in the mid-and small-caps have been sharper with both these indexes surging around 12 per cent and 10 per cent during this period. Market watchers believe that positive global cues and ease in selling by foreign institutional investors aided sentiment during the month. Sentiment buoyed further across the global markets after Fed states that it will slow the pace of rate increases at some point to assess the impact of higher rates on the economy and inflation.
Nishit Master, portfolio manager, Axis Securities, said: “With expectations that the US Fed is not very far away from peak interest rates due to the emerging slowdown in the US and Europe, FIIs inflows turned positive in July, propelling Sensex and Nifty higher. Another factor that has helped India is the expectation that India is one of the few countries to have a fairly robust growth outlook for the coming year, unlike most other major economies expected to slow down significantly.”
The US Federal Reserve raised interest rates by 75 basis points against an expected hike of 100 bps last week. Further to the announcement, the American central bank gave the future interest rate guidance in the range of 3 per cent to 3.5 per cent. Analysts said the Fed, through its commentary, has made markets believe that this interest rate upcycle may not last long contrary to what was anticipated. This may have positive implications on equities globally, experts feel.
Will the Rally Continue in August?
With the significant up move in the markets in July, experts expect the equity markets to consolidate in August with a positive bias as markets digest the remaining results for the quarter and incremental economic data from the US and Europe.
Santosh Meena, Head of Research, Swastika Investmart Ltd., said: “The most important thing that worked out for the Indian market was the resilience of retail investors, especially in form of SIP. FIIs are turning buyers after relentless selling for more than 8 months and there is FOMO feeling amongst them as fundamentally Indian markets are much better placed compared to many global peers. The Cool off in commodity prices is easing inflation concerns whereas Fed is looking less hawkish as the market was fearing.”
Risk Factors Going Forward
Master said that going forward, the risk to Indian equity markets could mainly come from overseas in the form of economic data releases in the US forcing the US Fed to become more hawkish or weak economic data from the EU or significantly higher tightening by ECB due to higher inflation despite slowing growth.
Nifty Technical Outlook
Speaking about how much further upside is left going forward, Prashanth Tapse, research analyst, Mehta Equities, said: “Nifty’s 200 – DMA at 17,025 mark at an important level and works as supper support. Technically speaking, on the downside, the line in the sand is now at 16,871 marks. As long as 16,875 support holds, Nifty’s immediate targets are likely to be 17,500/17,557.”