Benchmark equity indices hit fresh life highs on Monday. But, both the BSE Sensex and NSE Nifty 50 indices failed to sustain at higher levels and ended the day marginally lower. A similar trend played out on Friday when markets corrected after scaling new highs. Analysts suggest investors are nervous ahead of the Lok Sabha election results next week and are booking profits at higher levels, rather than taking fresh long positions now.
The Sensex scaled 76,000, hitting a life high of 76,009.68 intra-day, before closing at 75,390.50, down around 20 points or 0.03 per cent. Similarly, the Nifty 50 hit a new high of 23,110.80, but erased all the gains to close near 25 points or 0.11 per cent lower at 22,932.45.
"The bulls are facing stiff resistance at 23,000 levels as investors start booking profit at higher levels to avoid any knee-jerk reaction in the market ahead of the election result," said Vinod Nair, head of research at Geojit Financial Services.
Volatility in Indian markets has gone up a lot over the past few weeks; India VIX, which gauges near-term market volatility, traded above 23, up around 7 per cent, on Monday, It has risen sharply over the past month, indicating the anxiety among investors, ahead of election results.
Foreign portfolio investors have been big sellers in Indian equity markets this year. So far in 2024, they have net sold Rs 20,762 crore in stocks, with Rs 22,984 crore sold in May alone.
Global emerging market funds, in particular, have seen huge outflows amid growth concerns in China, which has a large weight in the EM indices.
"As China and other EMs are not doing well, that pool of capital is seeing outflows. We don't know when that will reverse maybe after rate cuts commence and/or the dollar weakens," noted Rahul Singh, chief investment officer - equities, Tata Mutual Fund in an interaction with THE WEEK.
Other than the uncertainty around next week's election results at home, the uncertainty around when major central banks, including the Federal Reserve, begin cutting interest rates this year, has also weighed on equity market investors.
At the beginning of the year, many had expected the US Fed to cut interest rates several times as inflation cooled. Other central banks were expected to follow the Fed and cut rates too. However, a surprise upside in inflation and a hawkish tone by a few Fed Governors have given rise to uncertainty on if and when will interest rates start going down.
Goldman Sachs now expects the US Fed to cut interest rates first only in September, versus its earlier expectation of July. This will be followed by another rate cut in December. Domestically too, Goldman Sachs expects the RBI to now cut the repo rate only in the October-December quarter of 2024, versus its earlier expectation of a rate cut in the September quarter.
"The timing of the first rate cut by the RBI remains a difficult question as domestic growth remains strong, which, along with sticky trajectory for food inflation has meant that some RBI monetary policy committee members may be reluctant to pivot towards monetary policy easing," said Santanu Sengupta, chief India economist at Goldman Sachs.
The MPC may want to see monsoon progress and the summer crop sowing to assess the food inflation outlook in the second half of calendar year 2024, before pivoting towards monetary policy easing, he added.
Goldman continues to expect a shallow easing cycle of a total of 50 bps (basis points) rate cuts from the RBI, with 25 bps rate cuts each in the December quarter of 2024 and March quarter of 2025.
In the near term, the release of GDP growth numbers in India and US inflation figures will have a bearing on investors moves and provide near-term direction ahead for stock markets, said Nair of Geojit.
