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The Indian stock market is currently navigating a complex landscape, influenced by a multitude of global and domestic factors. After a six-day winning streak, the market experienced a downturn on Friday, largely attributed to profit-taking and investor caution ahead of Jerome Powell's speech at the Jackson Hole Symposium. This annual gathering of central bankers and economists is closely watched by market participants for insights into the future direction of monetary policy. The Nifty 50 index, a key benchmark of Indian equities, shed 213 points, closing at 24,870, while the BSE Sensex, another prominent index, declined by 693 points to close at 81,306. The Bank Nifty index also experienced a correction, falling 606 points to finish at 55,149. Despite the overall negative sentiment, some stocks, particularly in the auto sector, bucked the trend. M&M, Maruti, and BEL emerged as the top performers within the Nifty pack, demonstrating the selective nature of market movements. Conversely, companies like Grasim, Asian Paints, and Adani Enterprises faced a challenging session, ending as the major losers. Experts suggest that the Indian stock market could potentially witness a trend reversal when trading resumes on Monday, albeit for a truncated week. This optimism stems from improved global sentiments following Jerome Powell's remarks at the Jackson Hole Symposium. Powell's speech has sparked hopes for a potential US Federal Reserve rate cut in 2025, which has subsequently exerted downward pressure on US dollar rates and the US bond market. A rate cut by the US Federal Reserve, the central bank of the United States, is a significant event that can have far-reaching implications for global financial markets, including the Indian stock market. It is typically viewed as a stimulative measure, designed to boost economic growth by lowering borrowing costs for businesses and consumers. Lower interest rates can encourage investment and spending, leading to increased economic activity. However, experts remain cautious about declaring a fresh bull trend, citing the significant hurdle that the Nifty 50 index faces between 25,250 and 25,300. This level represents a potential resistance point, where selling pressure may intensify, preventing the index from moving higher. The continuous selling by Foreign Institutional Investors (FIIs) has also been a major factor weighing on the Indian stock market. FIIs are foreign entities that invest in the financial assets of a country. Their investment decisions can have a substantial impact on market sentiment and liquidity. However, the anticipation of a US Federal Reserve rate cut has raised hopes that this selling pressure may ease, potentially triggering a renewed bullish phase on Dalal Street, the financial hub of India. The key factors expected to influence the Indian stock market in the coming week include the US Federal Reserve rate cut buzz, global cues, the FIIs' trade pattern, the Reserve Bank of India (RBI) rate cut buzz, and the ongoing Russia-Ukraine war.
The US Federal Reserve rate cut buzz is arguably the most significant trigger for the Indian stock market. Sugandha Sachdeva, Founder of SS WealthStreet, believes that the market is poised to open on a positive note, drawing inspiration from Jerome Powell's Jackson Hole address. She interprets Powell's remarks as a clear dovish signal, indicating the imminent possibility of a rate cut. Powell's acknowledgment of the rising risks associated with a weakening US job market suggests a potential shift in the Fed's monetary policy stance towards supporting employment and economic growth. This dovish stance is expected to provide a boost to investor confidence and liquidity in the market. Global cues, particularly the performance of the US stock market, are also expected to play a crucial role in shaping the direction of the Indian stock market. Anuj Gupta, Director at Ya Wealth, anticipates that the Indian market will closely track global developments, especially in the United States. The global market is currently pricing in a 25 basis point (bps) US Federal Reserve rate cut, which is fueling liquidity expectations on Dalal Street. However, Gupta cautions that this optimism may not be sufficient to propel the Nifty 50 index beyond the resistance level of 25,250 to 25,300. The trading behavior of FIIs is another crucial factor to watch. Anuj Gupta expects a pause in the continuous selling by FIIs, attributing this expectation to the US Federal Reserve rate cut buzz. He believes that the rate cut buzz has put downward pressure on US bond yields and US dollar rates, making Indian equities more attractive to foreign investors. Data from the previous week reveals a mixed trend in FII activity, with FIIs turning buyers in select sessions but remaining largely cautious overall, resulting in a net outflow of approximately ₹1,559.51 crore. In contrast, Domestic Institutional Investors (DIIs) have consistently provided support to the market, acting as net buyers with a net inflow of around ₹10,388.23 crore. DIIs are domestic entities that invest in the financial assets of a country. Their steady buying activity has helped to cushion the impact of FII selling and maintain market stability.
The Reserve Bank of India (RBI) rate cut buzz is also contributing to the positive sentiment in the market. Sugandha Sachdeva suggests that a Federal Reserve rate cut could provide the RBI with greater flexibility to consider a final 25-bps rate reduction in its upcoming policy review. This potential rate cut by the RBI could mark the culmination of the current easing cycle. Lower interest rates can stimulate economic activity by reducing borrowing costs for businesses and consumers. The ongoing Russia-Ukraine war remains a persistent source of uncertainty and geopolitical risk. Anuj Gupta emphasizes that despite diplomatic efforts, the geopolitical tension surrounding the conflict remains a significant factor that could disrupt market dynamics at any time. Geopolitical events can have a significant impact on financial markets, often leading to increased volatility and risk aversion. Investors tend to become more cautious during times of geopolitical uncertainty, which can negatively impact asset prices. In conclusion, the Indian stock market is currently influenced by a complex interplay of global and domestic factors. The US Federal Reserve rate cut buzz, global cues, FII trading patterns, the RBI rate cut buzz, and the Russia-Ukraine war are all key triggers that are expected to shape the market's direction in the coming week. While the anticipation of a US Federal Reserve rate cut has generated positive sentiment, investors should remain cautious and monitor these factors closely to make informed investment decisions. The market faces potential resistance at the 25,250 to 25,300 level on the Nifty 50 index, and the geopolitical risks associated with the Russia-Ukraine war remain a persistent concern. Therefore, a balanced approach, combining optimism with vigilance, is essential for navigating the current market environment. Furthermore, investors should consider diversifying their portfolios to mitigate risk and consult with financial advisors to develop a suitable investment strategy based on their individual circumstances and risk tolerance. Understanding the interplay of these factors is crucial for making informed investment decisions in the Indian stock market.
Source: US Fed rate cut buzz to FPIs' selling: Top five triggers for the Indian stock market next week