India's share markets opened the week on a strong note despite concerns stemming from disappointing GDP growth figures for fiscal second quarter, with benchmark indices Sensex and Nifty surging in late trade, led by auto, IT, pharma, healthcare, and consumer durable stocks.
On Monday, 2 December, NSE Nifty 50 gained 0.6 percent or 145 points to end at 24,276, and BSE Sensex rose 445 points to 80,248 at close.
The recently released GDP data revealed a seven-quarter low growth rate of 5.4 percent for the July-September quarter, significantly below the 6.5 percent median forecast from a Moneycontrol poll of economists. Mining contracted sharply, while manufacturing and utility services also struggled, weighing on overall growth.
Weak GDP already discounted; eyes on RBI's mid-term rate trajectory
However, experts said that the market appears to have discounted the weak economic growth beforehand, and is eyeing the Reserve Bank of India’s Monetary Policy and rate action due later this week for future direction.
The market reaction today shows that the weak GDP numbers were already discounted, said Kunal Rambhia, Fund Manager and Trading Strategist, The Streets. “That is the reason we saw the correction in the previous month,” he said.
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Investors may have already taken cues about a weak economic growth from Q2 corporate financial results. “The Q2 GDP shocker of 5.4 percent will weigh on markets, but the impact is unlikely to be big since part of the declining growth was factored in by the market after the disappointing Q2 corporate financial results,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
RBI's interest rate trajectory will be closely watched, with the Governor's upcoming speech likely to provide crucial insights into the central bank's mid-term policy approach, said Rambhia.
Low-volatility sectors shine amid rate uncertainty, investors turn cautious on banks
The rate cut uncertainty has also prompted investors to move to more stable avenues, as seen from buying in Pharma, Healthcare and Consumer Durables stocks today. The Nifty Pharma index rose 0.9 percent, the Nifty Healthcare index was up 1.3 percent, and the Nifty Consumer Durables index advanced 2.1 percent. Nifty Auto and Nifty IT indices surged in late trading, ending up nearly 1 percent each.
Banking indices Nifty Bank, Nifty Private Bank, and Nifty PSU Bank, which dragged earlier in the day, ended in a narrow range of -0.2 percent to +0.1 percent. The caution in banking stocks reflected the sentiment ahead of the Reserve Bank of India's (RBI) monetary policy decision later this week.
Rambhia said that low-beta sectors such as pharmaceuticals, healthcare, and consumer durables are likely to continue their upward trend, while banking stocks are under pressure as investors await the RBI's response to the lower GDP numbers.
Private consumption emerges as a bright spot
While the weak GDP statistics may have been expected, a reduction in Foreign Institutional Investor (FII) selling may be seen as a positive sign for the markets, said Karthik Kumar, Fund Manager, Axis Mutual Fund. “We had expected softer numbers, given the slowdown in high-frequency indicators and a lacklustre earnings season,” he said, while expressing a preference for consumer discretionary and pharmaceutical sectors. He maintained an underweight stance on private banks and commodities.
Further, despite a sharp slowdown in Q2 GDP, there seems to be optimism about private consumption growth, which rose 6 percent, significantly outpacing overall GDP growth, said Vikas Gupta, CEO and Chief Investment Strategist at OmniScience Capital. “This dispels recent concerns about weakness in private consumption,” Gupta said.
While government consumption improved sequentially, Gupta attributed its year-on-year decline to cautious spending ahead of elections. He suggested that short-term dips in equity markets could offer buying opportunities for long-term investors.
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