Short Call: Will Powell hint at Sep rate cut at Jackson Hole and is it enough to draw FIIs to Indian markets? L&T, NHPC, TechM in focus

As DIIs keep pouring money into the market with brute force of liquidity, FIIs keep missing out on the rally and are now looking at the US Federal Reserve Chair Jerome Powell for cues

With major quarterly earnings and retail inflation behind, Indian markets are again searching for a trigger. Not Indian markets necessarily but the foreign institutional investors. Domestic institutional investors have consistently backed the market, remaining net buyers since August 2, while FIIs have been offloading consistently with odd days of buying in between this month.

As DIIs keep pouring money into the market with brute force of liquidity, FIIs keep missing out on the rally and are now looking at the US Federal Reserve Chair Jerome Powell for cues as he is set to deliver his keynote speech at the Jackson Hole Symposium in Wyoming later this week, where significant policy announcements have often been made.

The Fed Chair is expected to provide clarity on whether the central bank will move forward with the much-anticipated interest rate cut at its September meeting. If yes, what will be the quantum-- 25 basis points or 50? But why is the rate cut decision so difficult for the American central bank? Because the mother market is fearing the ghost of recession.

However, data suggests that US economic activity is slowing but is not particularly weak. The labour market is still strong with firings remaining low, and the current unemployment rate of 4.3 percent is not as concerning as in past cycles. And despite a rise in credit spreads due to market volatility, they are still far from recessionary levels and are expected to be temporary.

Seth B Carpenter, Chief Global Economist at Morgan Stanley, suggests that Powell's speech might emphasize how the economy can decelerate from its unsustainably fast pace while remaining strong enough to avoid a recession.

Carpenter believes that the Fed may opt for successive 25bps cuts. Since the markets are already pricing a rate cut in the next meeting, even if the Fed chair hints at it at Jackson Hole, will it result in FIIs coming back to Indian equities with rejuvenated exuberance? Or is there more to their decision of staying away like 'rich valuations'?

NHPC (Rs 95, -0.8%)

Landslide hits hydropower project in Teesta river

Bull case: As the company boasts of 10.7 GW of projects under construction and 8.3 GW in various stages of development, the Street expects further re-rating of the stock once the installation and commission of project is complete. Since it is a strong play on clean energy, it may also benefit from government's increased thrust towards green initiatives.

Bear case: Any delay in execution of power plants can drive de-rating of the stock. Instances like flash floods or disruption of services in situation of landslide can also contribute towards negative sentiment of the stock.

L&T (Rs 3,593.75, +0.6%)

Won a large (Rs 2,500-5,000 crore) order for its transportation infrastructure business.

Bull Case: The stock is currently trading at a PE of 30.8x/23.6x on the earnings of FY25/26E, which makes it more reasonable compared to other players in the space. Continued order wins, margin improvement coupled with sales growth are likely to drive earnings for the next few quarters.

Bear Case: Private capex still has not picked up to the level expected, while public capex growth tapers off. Delayed projects or initiatives could potentially impact the topline. Additionally, continued labour shortage problems could impact execution timelines.

Tech Mahindra (Rs 1,608, -1.3%)

Shares fell after CLSA downgraded the stock to 'Hold' from 'Outperform' and reduced its target price to Rs 1,626 from Rs 1,670.

Bull Case: The company secured $534 million in deals in Q1 FY25, its highest in three quarters and up from $359 million last year. It reported 23 percent increase in consolidated net profit to Rs 851 crore for the June quarter. Management forecast a better performance in FY25 compared to FY24.

Bear Case: Concerns over valuations and the telecom sector's growth persist. While the telecom business is improving, it’s not showing a strong recovery. The company hasn't announced major deals like competitors. CLSA expects slow capital expenditure in telecom and the delayed commercialisation of enterprise 5G.

(With inputs from Lovisha, Zoya and Neeshita)