Indian equity benchmarks closed out with marginal gains on Friday, but ended the week with losses on rising global recession fears after poor economic data from Asia to Europe and Americas.
Investors also remained jittery ahead of the Federal Reserve’s Jackson Hole Conference, looking for clues on how sharp future interest rate hikes might be.
“…investors will likely maintain caution ahead of Powell’s speech at the Jackson Hole symposium. Investors are worried that the Fed Chair will double-down on the central bank’s inflation fight,” Prashanth Tapse, Senior Vice President for Research at Mehta Equities, had said earlier in the day.
The BSE Sensex index closed out Friday with marginal gains of 59.15 points to end at 58, 833.87, and the Nifty edged up 36.45 points to 17,558.90.
From the Sensex pack, NTPC, Titan, Power Grid, Kotak Mahindra Bank, Larsen & Toubro, Tech Mahindra, Tata Steel and Mahindra & Mahindra were among the major winners.
On the other, IndusInd Bank, HDFC, Asian Paints and Bharti Airtel were the major laggards.
“The markets were weak amid global economic indicators suggesting softness in various economies, cautious market positioning ahead of the Fed chair’s speech at Jackson Hole and the strengthening of the USD,” said Shrikant Chouhan, Head of Equity Research for Retail at Kotak Securities.
“IT services, metals and oil, gas & consumable fuels were the top losers in the week, while capital goods sector was the only gainer among major sectors,” he added.
Fed Chief’s speech at the annual conference in Jackson Hole will be scrutinised for any hints that a slowing economy would change the Fed’s plan to raise interest rates.
“With markets having been largely in risk-on mode since the third week of June, the chances are low that Powell will deliver a dovish surprise with the risk rather of the opposite outcome,” said Christopher Wood, global head of equities at Jefferies.
Wood, in his note published late Thursday, also called India the best structural story in Asia by far.
“The reality is that the Indian market has so far surprised everyone by its resilience in the face of bearish sentiment triggered by the wave of foreign selling, prevailing high valuations and monetary tightening,” he wrote.
The Nifty 50 is up around 2.3 per cent so far this month, after gaining 8.7 per cent in July on easing crude prices and hopes of a slower pace of rate hikes.
Automaker Eicher Motors was the biggest percentage loser on the Nifty 50, dropping 3.6 per cent in its worst session since early March, after UBS downgraded the stock to ‘neutral’ from ‘buy’, citing a 34 per cent rally this year.
The Nifty Metal index was the best performing sub-index, gaining 1.8 per cent.
Investors will eye the Fed Chair Powell’s speech, to see whether he offers any hints about how quickly the US central bank still intends to hike interest rates.
“The smoke signals (from the Fed) have been…’if we have to err on the side of overtightening or not doing enough, we know what side we want to be on’,” Ray Attrill, head of FX strategy at National Australia Bank, told Reuters.
“I think there’s an element of wanting to be seen to be talking tough in the hope that the tougher they talk, the less we have to do in terms of policy.”
Investors will also look to Powell to see whether his comments on the long-term outlook could prompt markets to unwind 2023 monetary easing bets, underpinning the dollar, Attrill added.
Markets assume that policymakers will be more concerned about slowing GDP than rising inflation as we head into the year, with US rate hikes expected to peak this year or at the beginning of 2023.
Oil prices rose as much as $1 on Friday as the latest US data lowered recession fears, although an upcoming speech from the Fed chairman capped further gains.
But Indian capital markets have been buoyed by the return of foreign institutional investors (FIIs) and that trend is expected to remain.
“Going forward, D-street will focus on the macro trends. The FIIs have been on a buying spree and have bought over Rs 46,000 crore so far in August. The continuous FII buying has been a major contributor to the current rally,” said Kotak Securities’ Mr Chouhan.