Moneycontrol Pro Market Outlook | Will Fed rate cut hopes revive Indian markets?

While the Indian markets edged upwards, the US market experienced a sharp uptick.

Dear Reader,

The Indian markets experienced a modest rise for the second consecutive week, even as foreign institutional investors (FIIs) continued to sell off their holdings. The repercussions of the punitive 25 percent tariff hike proposed by Donald Trump are fading. During this period, the benchmark indices climbed by 0.97 percent, while the small and mid-cap indices saw more significant gains, surging by nearly two percent.

FIIs maintained their selling streak, offloading shares worth Rs 1,559.51 crore for the eighth week in a row, which brought their total sales for the month to an impressive Rs 25,751.02 crore.

In terms of sector performance, the Auto index recorded a notable increase of five percent, with the Consumer Discretionary, Telecom, and Realty indices also performing well, each rising by over three percent.

While the Indian markets edged upwards, the US market experienced a sharp uptick on Friday. This surge was primarily driven by remarks from US Federal Reserve Chair Jerome Powell, who indicated the possibility of a near-term interest rate cut during his speech at the Jackson Hole Symposium.

As discussions surrounding the Federal Reserve's potential interest rate cuts intensified, expectations surged significantly, rising to an impressive 90 percent from the previous 75 percent following Powell's recent remarks.

This shift had a noticeable impact on the stock market. While the Dow Jones experienced a notable increase, other indices in the United States remained largely flat or even dipped into negative territory. In contrast, the lower interest rates provided a boost to European markets, propelling the UK index to achieve a new record high.

In the upcoming week, it is anticipated that the Indian markets will gain from a sense of optimism surrounding a potential rate cut in the US. Such a reduction in rates could ideally help to temper the selling pressure from foreign institutional investors (FIIs) and perhaps even reverse the trend. However, whether this will actually occur remains to be seen.

Market at crossroads

The Nifty index wrapped up the second week on a positive note, although it surrendered a significant portion of its intra-week gains by the week's end. This situation, occurring at a 61.8% retracement level, raises several questions about the overall trend. Are we truly out of the woods? The answer remains unclear.

In the short term, sentiment is cooling off from some notably extreme levels, leaving us to wonder just how far down the market may still go.

Throughout the week, the daily swing reached a peak of around 91 once again, and many recent instances of hitting this level have resulted in immediate trend reversals. This trend held true for the day at least. As we move forward, we will keep a close eye on subsequent actions in the market.

Source: web.strike.money

For several days, the number of stocks generating RMI buy signals has remained above 90. Historically, readings that exceed 80 or 90 have often indicated recent market peaks and have signalled potential near-term trend reversals.

Source: web.strike.money

Looking at the long-term indicator of stocks above the 200-day moving average (DMA), we can apply this analysis to the Nifty 500. We may be witnessing a pattern similar to what occurred in 2022.

Last time, stocks peaked at approximately 69%, only to decline to around 31%. Currently, we have reached a peak of 65%. Does this mean we are on the brink of dropping back down to 30%?

Such a scenario would be painful, as it would imply numerous stocks relinquishing their recent gains. Only time will tell. As the saying goes, history doesn't repeat itself, but it often rhymes.

Source: web.strike.money

Sector Rotation

Nifty 50 – The Benchmark Index ended higher by +0.97% this week and closed at 24870.10.

Weakening Quadrant: Nifty PSE, Nifty Oil and Gas, Nifty Bank, Nifty Financial Service and Nifty Private Bank have seen sharp deterioration in momentum and relative strength. Nifty Private Bank is very close to getting into the lagging quadrant. Nifty Energy and Nifty Realty have entered the weakening quadrant this week from the improving quadrant, and these indices have also seen sharp deterioration in momentum and relative strength.

Lagging Quadrant: There are no indices in the lagging quadrant.

Improving Quadrant: Nifty Consumer Durable and Nifty FMCG are seeing an uptick in momentum as well as relative strength. However, the Nifty Pharma index has seen a dip in momentum this week, and this index needs to be monitored closely in the forthcoming weeks. If the momentum continues to weaken in the coming weeks, it is likely to underperform the Nifty index significantly.

Leading Quadrant: Nifty MNC and Nifty Auto indices have seen a sharp improvement in momentum and a sharp improvement in relative strength. This is a good sign. However, other indices like Nifty Metal, Nifty Infrastructure, Nifty Media and Nifty PSU Bank are witnessing deteriorating momentum as well as relative strength.

Weakening Quadrant:  Nifty FMCG is in the weakening quadrant. There has been some pickup in momentum over the past couple of trading sessions, but it remains very close to the lagging quadrant. Momentum, along with an increasing relative strength, can lead to outperformance in the short term. However, if it enters the lagging quadrant, then it is expected to underperform in the near term. It is at an interesting point.

Lagging Quadrant:  A few indices such as Nifty PSE, Nifty Energy, Nifty Consumer Durable and Nifty Pharma are showing rising momentum trend. Other Nifty indices like Nifty Private Bank, Nifty Bank and Nifty Financial Service are continuing to see deteriorating momentum and relative strength, indicating that underperformance is likely to continue in the near term. Nifty Metal has seen a fresh entry in the lagging quadrant in Friday's trading session. The momentum and relative strength are deteriorating for the Nifty Metal index.

Improving Quadrant: Nifty Realty, Nifty IT, Nifty Oil & Gas, and Nifty Infrastructure are seeing an increase in momentum and relative strength. Within the improving quadrant, the Nifty Media index is witnessing declining momentum, which is not a good sign.

Leading Quadrant: Nifty Auto exhibits rising momentum and a relative strength trend. However, the momentum in the Nifty PSU Bank has taken a sharp U-turn this week, which is not a good sign. Nifty MNC has transitioned from the weakening quadrant to the leading quadrant this week and is now experiencing a rising momentum relative strength trend.

Stocks to watch

Among the stocks expected to perform better during the week are AB Capital, Ultracemco, Grasim, Apollo Hospital, TVS Motors, Eicher Motors, Maruti, MFSL, Cummins India and Delhivery.

Cheers, 

Shishir Asthana