The Sensex and the Nifty swung between gains and losses before closing the March 20 session marginally higher as investors were in a wait-and-watch mode ahead of the US Fed policy announcement, even as local factors continued to weigh on sentiment.
The American central bank late on March 20 is expected to again hold interest rates at 5.25-5.5 percent.
Analysts said that even if there is an explicit near-term rate cut commentary from the Fed, the Indian benchmarks are unlikely to rebound from the current slump. Investor confidence has been hit by internal concerns including frothy valuations, year-end profit-booking, tax-booking, and recent regulatory interventions by SEBI and AMFI.
"The recent downturn in Indian equity appears to be primarily driven by technical factors and valuations rather than external influences. Thus, Fed commentary may not be able to mitigate the nervousness prevailing in the market," said Arvinder Singh Nanda, Senior Vice President at Master Capital Services.
Over the past five trading sessions, the equity benchmarks have undergone a correction, with the Sensex declining nearly 1 percent.
Nanda said markets have likely priced in the Fed’s status quo, expecting rate cuts in the second half of the year. If the Fed's commentary aligns with these expectations or even leans slightly hawkish, market reaction may be subdued.
Trivesh D, Chief Operating Officer at Tradejini, said the diminishing impact of the Fed's rate decisions on the Indian market is due to reduced dependency on foreign portfolio investors (FPIs). “This shift reduces the market's vulnerability to major fluctuations based on Fed rate cuts," he said.
Fed’s commentary will decide the trend in the mother market US and could improve global market sentiment.
In India, however, markets may remain in a consolidation zone. Buy on dips is likely to emerge in largecaps, said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
Once the nervousness among investors on account of domestic factors settles, any signal from the Fed suggesting rate cuts starting June could boost sentiment as "lower interest rates in the US often translate into increased availability of US dollars, stimulating greater foreign portfolio flows into Indian markets”, Akshat Garg, Senior Manager, Choice Wealth, said.
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