Indian markets dropped by over 1 percent on October 4, hitting a five-week low due to concerns sparked by an unexpected rise in the US job openings report. This, in turn, added to fears that the Fed might raise rates again this year, leading to the 10-year Treasury yield reaching 4.8 percent, its highest level since August 2007. Additionally, Wall Street's "fear gauge," the volatility index, recorded its highest close since May 24.
The likelihood of another US rate hike in November is 30 percent and there's a 38 percent chance of an increase by December. August job openings reached 9.6 million, surpassing the expected 8.8 million, reigniting concerns about a tight labour market. Investors’ attention will be on the September ADP and ISM services data.
The benchmark Sensex fell 1 percent to 64,948 points and Nifty lost nearly 0.9 percent to 19,350. Both flagship indices saw a last level seen on 31 August.
Also read: Code red for Bank Nifty, 11 of 12 stocks trade lower
China, US rate stance, FII selling pressurising local markets
Apart from expectations of higher rates for a longer period, global equity markets are also under pressure amid a housing crisis in China sparked by Evergrande's missed bond payment and rising crude oil, adding inflationary pressure to the global economy. FIIs sold around $1.9 billion in Indian equities in September due to these worries. However, DIIs have continued to remain net buyers.
Recently, brokerage firm Nomura has expressed caution regarding Asian stocks due to concerns about the Federal Reserve's prolonged rate stance and increasing commodity prices driving up US inflation. They've cautioned that if the Fed maintains its current course, higher US rates and bond yields could result in a more pronounced economic slowdown in 2024. While stocks have seemingly benefited from a gradual economic slowdown, this trend may not continue.
"This means FIIs will continue to sell and the bulls will be on the back foot. On the positive side, valuations in some segments are becoming attractive and this may push DIIs and retail investors to buy stocks in such segments. An inevitable consequence of this complex situation is heightened volatility," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Analysts highlight a significant trend: fundamentally strong stocks like large-cap private sector banks are weakening due to FII selling. Long-term investors could see this as an opportunity.
Also Read: Mid-day Mood | Nifty below 19,400, continuous FII selling sours sentiment
Investors eye better rainfall, earnings for good news on Indian markets
Analysts pointed out positive aspects in the Indian markets, such as news of bond inclusion and improved rainfall. September indicators show a mix of signals. Strength in vehicle registrations (PV, 2W and 3W), reduced unemployment and a deficit in deposits with the RBI are favourable signs. Conversely, reduced diesel demand, a slowdown in petrol consumption and CV registrations are negative factors. Upcoming measures to boost rural consumption and manufacturing, as well as the demand during the festive season in October-November will be closely monitored ahead of key state elections in three months.
Investors are now awaiting earnings for the September quarter which will start soon. Analysts anticipate that going forward, markets will be influenced more by bottom-up strategies. Companies that demonstrate strong earnings and efficient capital management are expected to outperform others, analysts added.
"Earnings season is round the corner. We will closely look for the incoming commentary on volumes as we approach the crucial festive season. The current quarter will continue to witness capex-driven businesses performing well on the earnings front. Global linked businesses like chemicals and IT will continue to report muted results while pharma is expected to be a mixed bag with domestic growth being slower while US-based pharma businesses should perform well", said ASK Investment Managers in its recent note.
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