US Recession Fears, Fed Rate Cuts to Influence Indian Market

Mumbai: Global cues and foreign investors stand on the Indian market amid recent job data in US pointing to potential recession fears and US Fed rate cut possibilities will be key to stock market movement in the week ahead.Indian market is likely to remain resilient to negative global cues as good monsoon rains, a decline in crude oil price augur well for Indian economy.

A fall in global markets on Friday after the Indian market's close is likely to keep sentiments negative.US market benchmarks were down for second consecutive session- Dow Jones(-1.51 per cent), S&P 500(-1.84 per cent),& Nasdaq Composite(-2.43 per cent).

"FPIs are following the cautious approach keeping in mind the concerns raised by the US Federal Reserve and escalating geopolitical tensions in the Middle East indicating early signs of recession," said Manoj Purohit, partner & leader, Financial Services Tax, Tax & Regulatory Services, BDO India.

"Currently, the rising unemployment rate, weakening manufacturing index and lowering of treasury yields cumulatively gives an alarming signal for the recession. However, the government have been optimistic in its Federal Policy statement earlier this week on the grounds of easing inflation and stagnant job market. One needs to wait and watch the impact of the unchanged Fed rate in the coming months on the inflation and the unemployment numbers," said Purohit.

Analysts feel India market will gain from a US Fed rate cut and foreign investors will deploy more money in the Indian market where large cap stocks still look attractive but others felt India is expensive.

"The sharp drop in job creation in the US and the rising unemployment indicates the rising possibility of a recession in the US, which, so far, the market has ruled out. The possibility of a rate cut by the Fed in September is very high. Consequently the US 10-year bond yield has fallen sharply to 3.79 per cent. Even though this is positive for FPI inflows into emerging markets like India FPIs may think of pulling more money out
of India since India is the most expensive emerging market now.The developments in the US economy and markets in the coming days will set the trend for FPI in August," said V K Vijayakumar, chief investment strategist, Geojit Financial Services.

"We have been seeing mixed activity by the FPIs in the recent past, with bouts of buying and selling, a trend which is likely to continue for some more time. Their activity will remain influenced by various factors, including the performance of the global equity markets, the movement of dollar index, incremental geopolitical events, and opportunities in the Indian markets considering slightly elevated valuation levels," said Milind Muchhala, executive director, Julius Baer India.

"While the US Fed provided mixed commentary in terms of their rate cut path, the recent weak job data, coupled with the benign inflationary environment, will definitely strengthen the case for a rate cut in September. The key thing to watch out for will be the path going ahead in terms of whether there will be more rate cuts during the calendar year or they get pushed out to next year," Julius Baer analyst said.

Brent crude oil price fell sharply to USD 76.31 per barrel on Friday, an eight month low on weak US job data and drop in imports from CHina which will please the Indian market as a large consumer of imported crude oil.

Monsoon has been vigorous in many parts of the country and as per last week.data by Indian Meteorological Department rainfall for the entire country has been 2 per cent above long period average while it is still deficient over East and North- East India and Northwest India.

Big earnings announcement during the week include Bharti Airtel LIC, Grasim, Marico, Lupin, Tata Power, TVS Motor, ABB and Trent among others.

Ola Electric's mega Rs 6145 crore IPO also closes on August 6 and FristCry's Rs 4187 crore IPO also scheduled during the week, which may suck liquidity from the secondary market.