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Market Commentary 06 February 2024
Benchmarks likely to get cautious start amid weakness in global peers

Indian equity benchmarks erased all of their initial gains and ended lower on Monday on fag-end selling amid weakness in Asian markets. After making a positive start, the markets gained some traction and oscillated in a narrow range for most part of the day, as traders got support after provisional data from the NSE showed Foreign institutional investors (FIIs) net bought shares worth Rs 70.69 crore on February 2. Some support also came in as the Reserve Bank of India (RBI) said India's forex reserves increased $591 million to $616.733 billion for the week ended January 26.  Some support also came as CRISIL's latest report stated that the Indian economy is expected to grow at an average rate of 6.7% per annum until the end of the decade. The economy will grow at this rate between the financial years 2024 to 2031, a notch above the pre-pandemic average of 6.6%. According to CRISIL, the key contributor to this trend will be capital. Markets managed to trade in green in afternoon deals, as India's services activity rose at the sharpest rate of expansion in January 2024. The HSBC India Services PMI came in at 61.8 in January, up from 59 in December. It is the highest since July 2023 when the PMI was 62.3. A reading above 50 shows that the sector is expanding. Some optimism also came as senior government officials and industry players have discussed ways to enhance collaborations and create a clear action plan for successful implementation of PLI schemes. However, a sharp dip in the final hour pushed the indices lower. Traders took a note of the Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey's statement that the central government and Central Public Sector Enterprises (CPSEs) are estimated to monetise assets worth Rs 1.50 trillion in the current fiscal (FY24), a tad lower than the targeted of Rs 1.75 trillion. Finally, the BSE Sensex fell 354.21 points or 0.49% to 71,731.42 and the CNX Nifty was down by 82.10 points or 0.38% to 21,771.70.

The US markets ended lower on Monday as some traders looked to cash in on the rally seen to close out the previous week amid fading optimism about the likelihood the Federal Reserve will cut interest rates in March. Fed Chair Jerome Powell reiterated the central bank is unlikely to cut interest rates next month. Powell suggested the strength of the US economy even amidst elevated rates will allow the Fed to proceed carefully. However, selling pressure waned over the course of the session as traders once again saw the pullback as a buying opportunity about general optimism about the outlook for the markets. on the sectoral font, Despite the recovery attempt by the broader markets, airline stocks finished the day sharply lower, dragging the NYSE Arca Gold Bugs Index down by 2.9 percent. Substantial weakness also remained visible among gold stocks, as reflected by the 2.1 percent slump by the NYSE Arca Gold Bugs Index. The Institute for Supply Management (ISM) released a report showing U.S. service sector growth accelerated by more than expected in the month of January. The ISM said its services PMI climbed to 53.4 in January from a downwardly revised 50.5 in December, with a reading above 50 indicating growth in the sector. Street had expected the index to rise to 52.0 from the 50.6 originally reported for the previous month. The bigger than expected increase by the headline index was partly due to an acceleration in the pace of new orders growth, with the new orders index rising to 55.0 in January from 52.8 in December. The report also showed a significant turnaround in employment in the service sector, as the employment index jumped to 50.5 in January from 43.8 in December.

Crude oil futures ended higher on Monday as concerns about potential trade and supply disruptions after a series of retaliatory strikes on Iran-backed militants this weekend by a coalition led by the U.S. and U.K. However, the dollar gained in strength amid fading hopes of an early interest rate cut by the Federal Reserve following recent buoyant economic data, and Fed Chair Jerome Powell's comments that a rate cut is unlikely by March. Benchmark crude oil futures for March delivery gained $0.50 or about 0.7% to settle at $72.78 a barrel on the New York Mercantile Exchange. Brent crude for April delivery rose $0.66 or about 0.90% to $77.99 per barrel on London's Intercontinental Exchange.  

Indian rupee ended lower on Monday as strengthening American currency overseas and negative sentiment in the domestic equity markets weighed on the local unit. However, the downward trend in the global crude oil prices supported the domestic unit and restricted its decline. Traders overlooked report that India's services activity rose at the sharpest rate of expansion in January 2024. The HSBC India Services PMI came in at 61.8 in January, up from 59 in December. It is the highest since July 2023 when the PMI was 62.3. A reading above 50 shows that the sector is expanding. On the global front, the pound fell to its lowest since mid-December on Monday after a very strong U.S. jobs report and comments from Federal Reserve Chair Jerome Powell combined to boost the dollar. Finally, the rupee ended at 83.03 (Provisional), weaker by 5 paise from its previous close of 82.98 on Friday.

The FIIs as per Monday's data were net buyers in both equity and debt segment. In equity segment, the gross buying was of Rs 15613.80 crore against gross selling of Rs 15385.32 crore, while in the debt segment, the gross purchase was of Rs 5307.30 crore with gross sales of Rs 2406.91 crore. Besides, in the hybrid segment, the gross buying was of Rs 20.50 crore against gross selling of Rs 19.03 crore.

The US markets ended lower on Monday after Federal Reserve Chair Jerome Powell pushed back firmly against speculation that rate cuts would be imminent, while investors assessed a mixed bag of U.S. earnings reports. Asian markets are trading mixed on Tuesday ahead of the Bank of Australia's interest rate decision later in the day. Indian markets ended lower with significant losses on Monday, after trading in green terrain for most part of the day, as late hour selling mainly played spoil sport for domestic indices amid weak global cues. Today, markets are likely to get a cautious start amid weakness in global peers. Spike in the US 10-year yields likely to dampen sentiments in the markets. All eyes will be on the three-day monetary policy meeting of the Reserve Bank of India which will start today. There will be some cautiousness as global ratings agency Fitch said the fiscal deficit target of 4.5% of gross domestic product in FY26 would be a challenge for the government amidst a focus on capex to support growth. Fitch projects the Indian economy to grow 6.5% in FY25, helped by 11% growth in government capex. However, Foreign fund inflows likely to aid sentiments. Foreign institutional investors (FIIs) net bought shares worth Rs 518.88 crore on February 5, provisional data from the NSE showed. Some support will come as the Organization for Economic Co-operation and Development (OECD), in its latest interim economic outlook, raised India's growth outlook for 2024-25 (FY25) to 6.2 per cent from the 6.1 per cent estimated earlier in its November outlook. It said the emerging-market (EM) economies have generally continued to grow at a solid pace, despite tighter financial conditions, reflecting the benefits of improved macroeconomic policy frameworks, strong investment in infrastructure in many countries, including India, and steady employment gains. Also, the OECD raised its 2024 world economic growth forecast but warned that the Middle East conflict posed a risk, with disruptions in Red Sea shipping threatening to increase consumer prices. Banking stocks will be in focus as S&P Global Ratings said strong credit growth of Indian banks could moderate to 12-14 per cent in the next fiscal if deposit growth remains tepid. It added rising cost of funds and potential rate cuts in fiscal 2025 will squeeze net interest margins. Meanwhile, BLS E-Services shares will list on the bourses today. Moreover, investors will continue to keep close eye on earnings of many companies for more directional cues.

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  • Tata Motors has started working on its gigafactory in Somerset in the UK, and the financial closure for the project is underway.
  • Bajaj Finance has entered into a Securities Subscription Agreement /Shareholders' Agreement on February 2, 2024 to acquire 7% stake (fully diluted basis) in RMBS Development Company.
  • Eicher Motors and Volvo Group's JV company -- VECV has forayed into the small commercial vehicle segment with the global unveiling of the first product at the Bharat Mobility Global Expo 2024.
  • Bharti Airtel has launched thirty-four new, next-gen Company owned stores in the city of Kolkata.

News Analysis