Volatility Expected To Stay High In Indian Stock Market Ahead Of Elections 2024

Economic

Stocks

Summary:

Despite challenges, the Indian stock market shows resilience, with Nifty50 above 22. Caution is advised, favoring quality large-cap stocks. Short-term volatility is expected with the upcoming election, said Vinod Nair of Geojit Financial Services.

The volatility of the Indian stock market has increased in the last month. It is a combination of both global and domestic factors. Globally, speculation surrounding the timing and magnitude of the season's first Fed rate cut, coupled with selling pressure from FIIs in emerging markets, plays a pivotal role. Domestically, factors such as Q3 results announcement, Budget implications, pre-election rally, and high level of margin trading contribute significantly to the heightened market fluctuations.

The RBI opted to keep the repo rate steady at 6.5%, with a focus on withdrawals of accommodation, thereby tempering anticipations of an early interest rate decrease. Optimistic projection of a robust 7% economic growth for FY25, driven by enhanced manufacturing, strong construction sector, and a gradual revival in rural areas did help the stock market. While lack of measures to increase the liquidity in the banking system impacted the stock market performance in between.

The market has overcome the challenges and returned to the new zone trajectory. Nifty50 has held above 22, mirroring the positive sentiment prevailing in the global market. Despite the broad-based recovery, caution is aired, and market participants are more inclined towards quality large-cap stocks owing to the prevailing valuation gap. Though, mid & small caps have outperformed in the last one month, the degree of outperformance has reduced. We prefer large caps as a medium-term investment pattern.

The interim budget had outlined measures designed to stimulate economic. There was a notable focus on infrastructure, although slightly lower than anticipated ( ₹11.11 lakh crore in FY25). Since 2014, the Government of India has accorded significant importance to infrastructural and developmental initiatives. The same is evident in sectors like cement, which have experienced steady growth over the past 5–6 years. In addition, future attention is directed towards green energy, renewables, and manufacturing. The key beneficiaries are likely to be electronic and electrical products, with a focus on mass production like exports.

Beside infrastructure spending, the Production-Linked Incentive (PLI) schemes stand out as a pivotal initiative. These schemes are geared towards promoting domestic manufacturing, with the government aiming to allocate around Rs. 2 trillion in incentives. Currently, out of the targeted capital expenditure of Rs. 5 trillion, represents approximately 1.7% of the GDP for FY23. The government has garnered investment commitments totalling Rs. 3 trillion from 733 applicants.

The purpose of the PLI Schemes is to attract investments in key sectors and cutting-edge technology, ensure efficiency and bring economies of size and scale to the manufacturing sector, and make Indian companies and manufacturers globally competitive. Over the next five years, these schemes have the potential to substantially amplify production, job creation, and overall economic expansion. It is expected that these schemes will facilitate the creation of 6 million new jobs.

However, in the current short-term scenario, volatility is expected to rise as the upcoming major event of the election draws closer. India VIX index has increased to 15.2x from 13.5x month back. The ongoing robust pre-election rally, is forecasted to continue until the day of the election results, may take a breath. Corporate Q3 results are healthy and in-line with expectations nevertheless indicating a slowdown in earnings growth on a quarter-on-quarter basis. Similarly, the forecast for FY25 is moderate compared to FY23–24. The recent volatility in the global market has increased, mainly on speculation surrounding a possible US Fed rate cut in May. These factors will play a crucial role in determining domestic market movements in the short term, particularly given the high valuations.

Source:mint

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Comments

Add to Favorites

Cohen

Stocks

Economic

Japan's Nikkei share average climbed to the cusp of an all-time peak on Thursday after unexpectedly strong revenue forecasts from US chip designer Nvidia lifted Asian tech stocks.

However, the regional mood was tempered by a retreat in Chinese stocks from multi-month highs reached amid Beijing's efforts to boost market confidence.

Long-term US bond yields hugged three-month highs while the dollar sagged after minutes from the last Federal Open Market Committee meeting confirmed the view that interest rate cuts would be slow in coming, but weren't markedly more hawkish that the Fed's previously expressed views.

The Nikkei 225 share average pushed as high as 38,924.88 for the first time since January 1990 - right when the so-called bubble economy peaked - before entering the midday recess up 1.7 percent from Wednesday at 38,913.84. Its all-time high is 38,957.44 set on Dec. 29, 1989.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.07 percent, with a 0.71 percent rise for Taiwan's stock benchmark countered by losses in Hong Kong.

The Hang Seng slipped 0.41 percent, threatening to snap a seven-day winning streak. A subindex of tech shares slumped 0.84 percent.

Mainland blue chips oscillated throughout the session between small gains and losses.

Meanwhile, US stock index futures signaled gains, following a mixed session on Wednesday for the main benchmarks. S&P 500 futures rallied 0.75 percent and tech-focused Nasdaq futures jumped 1.39 percent.

Following the closing bell overnight, Nvidia forecast a roughly 233 percent surge in quarterly revenue, sending its shares up some 10 percent after-hours.

The Nikkei has jumped about 16 percent already this year, with the S&P 500 and Nasdaq rallying some 5 percent each, driven in large part by mammoth expectations for artificial intelligence (AI), with Nvidia's chips at the center of that boom.

"Nvidia's earnings beat boosted sentiment and eased concerns over stretched valuations, providing room for the AI theme to continue to drive markets," Saxo Markets analysts wrote in a research note.

The 10-year US Treasury yield eased slightly in Asian time on Thursday to 4.3068 percent, close to the 4.332 percent level marked a week ago and which had not been seen since the end of November.

The bulk of policymakers at the US Federal Reserve's last meeting in January were concerned about the risks of cutting interest rates too soon, with broad uncertainty about how long borrowing costs should remain at their current level, minutes released on Wednesday showed.

That reinforced the view among traders that any rate cut is not imminent, with market pricing suggesting one-in-three odds for a first reduction in May, according to CME Group's Tool.

The dollar continued to retreat from a three-month high reached last week, when the US dollar index, which tracks the currency against six major peers, reached 104.97. It was flat at 103.99 in early trading on Thursday.

The euro was little changed at $1.08195, while the yen was steady at 150.345 per dollar.

Elsewhere, oil prices rose slightly, adding to gains from the previous session that came amid signs of tighter supply.

US West Texas Intermediate crude futures (WTI) rose 17 cents to $78.08 a barrel for the prompt month. The May contract gained 14 cents to $77.45 a barrel by 0150 GMT.

Brent crude for April delivery ticked up 14 cents to $83.17 a barrel, while the May contract added 13 cents to $82.24 a barrel.

Oil prices rose 1 percent on Wednesday, with refinery restarts in the United States supporting demand after a series of outages earlier cut US refinery utilization rates to the lowest level in two years.

Source：TheJakartaPost

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Comments

Add to Favorites

FastBull Featured

Remarks of Officials

Economic data have become less reliable since the outbreak of the pandemic and prone to larger revisions than usual, Federal Reserve Board Governor Michelle Bowman said on February 21 (ET) when she participated in a discussion "A View from the Federal Reserve". She said Fed officials want to wait for more information to confirm the economy is softening and that inflation is slowing toward the Fed's 2% goal.

It will be time at some point to begin the process of lowering rates, but given the uncertainty in the data, it's certainly not now. There is plenty of time for us to get more confidence in where the economy is heading.

Richmond Fed President Thomas Barkin also delivered a speech on the same day, saying that recent economic data suggests while overall U.S. inflation has improved, price pressures in some sectors remain too high.

January inflation rose faster than expected. Although the year-on-year rate of increase fell, the rising shelter costs and service prices far offset this decline. This complicates the upcoming interest rate decision.

The slowdown in inflation relies on falling commodity prices, but at this stage, shelter and services inflation remains sticky. "You do worry that when the goods price deflation cycle ends, you're going to be left with shelter and services higher than you like it," Barkin said.

Barkin is paying more attention to the 1-month and 3-month inflation indicators than to the year-on-year data. He expected prices to continue to rise.

Barkin did not reveal his thoughts in the interview about how long the current high interest rates will stay. As a voting member this year, he is very cautious in that regard.

Risk Warnings and Disclaimers

Comments

Add to Favorites

Cohen

Economic

South Korea's central bank left interest rates at a 15-year high on Thursday amid signs that the weaker economy is slowing inflation, with investors zeroing in on Governor Rhee Chang-yong's comments on the timing of a policy pivot later this year.

The Bank of Korea (BOK) held its benchmark interest rate at 3.50% at a policy review in Seoul, keeping it unchanged for a ninth straight meeting as expected by all 38 analysts polled by Reuters.

The BOK kept its economic growth forecast for this year unchanged at 2.1% and inflation at 2.6%, it said along with the rate announcement.

South Korea's 300 basis points of interest rate hikes have stalled economic growth in Asia's fourth-largest economy as construction investment took a hit from higher borrowing costs even as exports continued to improve.

In a post-policy news conference, Governor Rhee is expected to join global peers such as the Federal Reserve and the Reserve Bank of Australia in pushing back against any bets on a near-term easing as inflation, while cooling, is still above the central bank's target of 2%.

In January, Rhee warned markets against rallying on premature expectations for a rate cut and said he sees very little chance of rate cuts for the next six months with inflation still high.

Data released since then showed consumer inflation hit a six-month low of 2.8% in January, still far from the central bank's target of 2% but easing for a third straight month mostly due to a fall in oil prices.

"With inflation cooling and growth set to struggle, we don’t think cuts are far away," Gareth Leather, an economist at Capital Economics said in a report after the rate decision.

"With inflation concerns easing, we are expecting the central bank to start sounding more dovish."

BOK board members have warned acting too soon could trigger a resurgence in price pressures especially due to upside risks from supply-side constraints.

The consensus forecast from analysts is that the BOK will start cutting rates in the third quarter of this year, but that would largely depend on when the Federal Reserve starts lowering it rates, analysts say.

Thursday's rate decision was the first for board member Hwang Kun-il, who began his three-year term on Feb. 13.

Source：Reuters

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Comments

Add to Favorites

FastBull Featured

Daily News

[Quick Facts]

1. Russian government terminates a fishing agreement with Britain.

2. Germany's economic advisers to cut the 2024 growth forecast.

3. Bailey's speech triggers the alarm on the British interest rate volatility.

4. Fed minutes show policymakers flagged risks of cutting rates too quickly.

5. Republican hardliners promote a stopgap spending bill that could cause a government shutdown.

6. Japan's manufacturing activity shrinks in Feb as business conditions deteriorate.

[News Details]

Russian government terminates a fishing agreement with Britain

The Russian State Duma (the lower house of the Russian parliament) announced on February 21, local time, that it had considered and approved the resolution on the abolition of the fishing agreement with Britain. In view of the UK's decision to terminate the most-favored-nation status for Russia in bilateral trade on March 15, 2022, it is necessary to abolish the fishing agreement, according to the announcement. In the explanatory document attached to the said resolution, it is stated that the agreement benefited one party only and did not bring similar or corresponding benefits to Russia. The abolition of the agreement would not result in serious diplomatic and economic consequences for Russia. The resolution will be submitted to the Federation Council (the upper house of parliament) for consideration, and after its approval, it will be signed by the Russian president before coming into force.

Germany's economic advisers to cut the 2024 growth forecast

Germany's economic advisers plan to follow in the federal government's lead and reduce their forecast for economic growth in 2024, said adviser Ulrike Malmendier. "I think we will definitely be going in the same direction... that is what our numbers are indicating," Malmendier said.

The November forecast of the council of advisers to the German government estimated growth would hit just 0.7% in 2024. The next official update is due in mid-May. As Reuters reported last week, the German government has lowered its growth forecast to 0.2% from 1.3% due to low growth in the global economy and a German constitutional court ruling that blew a hole in the country's budget (the government would release its annual economic report later on Wednesday).

Bailey's speech triggers the alarm on the British interest rate volatility

Following Tuesday's speech by Bank of England (BOE) Governor Andrew Bailey, interest rate traders now have fully priced in that the Bank of England will first cut interest rates by 25 basis points in August and by a cumulative 75 basis points by the end of the year. Bailey said that the policy can be eased before inflation falls back to the target level and that investors' current pricing of future interest rates is not entirely unreasonable. There are already signs, however, that a new round of price pressures could be coming to the U.K.. Gasoline prices at the pump in the U.K. have risen significantly in recent weeks.

In addition, U.K. Chancellor of the Exchequer Jeremy Hunt will have £23 billion ($29.1 billion) of headroom for pre-election tax cuts in his budget next month, a move that could spark inflation. So we should be wary of the possibility that a rate cut could be followed by a sharp rebound in inflation, which is also in line with BOE member Greene's warning that there is a risk of a premature rate cut followed by a reversal in the process of the falling inflation.

Fed minutes show policymakers flagged risks of cutting rates too quickly

Minutes of the Fed's January policy meeting show that It was not appropriate to cut rates until policymakers are more confident that inflation is moving towards 2% on a sustained basis. Most officials pointed to the risks of cutting rates too quickly. Some officials pointed out that maintaining an overly restrictive stance for too long would pose downside risks to the economy.

Fed officials also noted that inflation has eased over the past year but remains above the 2% inflation target. They remained concerned that rising inflation continues to hurt households, especially those who cannot afford higher prices. Although inflation data suggests a significant decline in the second half of 2023, Fed officials will carefully evaluate the data received to determine whether inflation continues to decline to 2%.

The labor market remained tight, but market supply and demand continued to come into a better balance. Wage growth remained strong in the last months of 2023, but the rate of growth slowed from a year ago, while the unemployment rate remained low. Some Fed officials believed that further increases in labor supply may be limited. For example, the labor force participation rate declined in December. Although labor market conditions were generally viewed as strong, some officials noted that recent job growth had been seen in just a few sectors, suggesting downside risks to the employment outlook.

Some Fed officials suggested that it may be appropriate to begin slowing the pace of balance sheet reduction.

The minutes appear to reinforce the recent message released by Fed policymakers. They expect to begin cutting rates sometime this year, but they are in no hurry to do so. It is clear by judging from the minutes and statements by Fed policymakers that they are worried about moving too quickly before declaring a final victory in the fight against inflation. The Fed's concerns seem justified given the pickup in prices.

Republican hardliners promote a stopgap spending bill that could cause a government shutdown

According to the AXIOS website, the U.S. House Freedom Caucus is officially pushing a one-year spending stopgap that could trigger a government shutdown if embraced by House Speaker Mike Johnson.

In a letter to Johnson on Wednesday, members of the Freedom Caucus said they preferred the spending stopgap if they could not advance other policy priorities through the budget process.

The U.S. government will go into a full shutdown if there's not a budget or stopgap by March 8. The key date is April 30. If there's not a new budget by then, it will trigger a 1% across-the-board spending cut. Democrats won't back a stopgap bill beyond this.

Japan's manufacturing activity shrinks in Feb as business conditions deteriorate

A survey from Jibun Bank released on Thursday showed that Japan's manufacturing PMI fell to 47.2 in February from 48.0 in January. The index has been below the 50.0 level for nine consecutive months, indicating that manufacturing activity continued to contract. The service sector activity growth also slowed down, which means that the Japanese business conditions are deteriorating as the economy is trying to get out of the recession.

As it stands, the modest improvement in Japan's private sector economy at the start of the year almost disappeared in February, with business activity generally stagnating. Business optimism was also the lowest since January 2023, reflecting a decline in optimism about future output.

Japan's economy unexpectedly fell into recession in the fourth quarter of last year, ceding the title of the world's third-largest economy to Germany.

[Focus of the Day]

Germany, Eurozone, U.K., & U.S. PMI Data

UTC+8 14:30 Bank of England MPC Member Greene Speaks

UTC+8 20:30 European Central Bank January Meeting Minutes

UTC+8 21:30 Canada Retail Sales MoM (Dec)

UTC+8 23:00 FOMC Member Jefferson Speaks

UTC+8 02:00 FOMC Member Bowman Speaks

UTC+8 03:00 Philadelphia Fed President Harker Speaks

Risk Warnings and Disclaimers

Comments

Add to Favorites

Samantha Luan

Economic

Fundamental structural reforms have changed India’s macroeconomic factors, which were earlier not appealing for foreign investors, said Chris Wood of Jefferies. India's macros are as good as any other country now, said Chris Woods in his popular Greed & Fear note. This was not the situation 21 years back when only Indian micros appealed to investors, he added.

Picking a statement from a 21 year-old note, Chris Wood said, “The bottom-up appeal of India has always been severely diluted by the lack of a compelling top-down story. In a sense the country has been the inverse of China, the ultimate macro story but without the compelling micro options.”

However, now India has seen a fundamental structural reform in the two five-year terms of Prime Minister Narendra Modi’s government. These reforms helped India realise full potential in taking advantage of its intellectual capital, physical capital, and positive demographics.

He stated three of the achievements of the Modi government.

The first one was a massive government-funded investment in infrastructure. This was a game changer for improving the overall logistical efficiencies of the economy, said Wood.

The second one was passing the Insolvency and Bankruptcy Act 2016. After this Indian promoters knew they were at a risk of losing their assets if they defaulted loans.

The third one was introducing RERA (Real Estate Regulation and Development Act of 2016). The property market was in a downturn for seven years and now it is in an upturn for the last three years and delivering its full potential, giving multiplier effects for the economy, he added.

Indian stock market driven by domestic investors

The top-down story in India is strong, but the bottom-up story remains dynamic, with a flourishing start-up scene and a booming local asset management industry, said Woods. This means that the stock market is now primarily driven by domestic flows which was not the case 21 years back. He noted how little foreign investors are invested in India right now.

Wood said that the increased profile of India on the global stage also reflects the marketing skills of Prime Minister Narendra Modi. This was also reflected in the widely acknowledged success of the G20 Summit held in Delhi last September. “In a world of rising geo-political tensions, India has deftly managed to maintain a foot in both camps, remaining on good terms with the Washington-dominated G7, while also being a fully signed up member of BRICS.”

Source：MoneyControl

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Comments

Add to Favorites

Samantha Luan

Forex

The US dollar weakened after financial markets were left with the same information about the Federal Reserve’s plans for interest rates: They may be lowered if inflation falls or remain high if inflation rises. With this lack of new information, the greenback failed to attract safe-haven demand. But the US Treasury yields surged in the middle of the holiday-shortened trading week.

According to minutes from the January Federal Open Market Committee (FOMC) policy meeting, officials stated that it would not be appropriate to trim the benchmark Fed funds rate until they are confident inflation is moving sustainably toward the 2% target rate.

With some officials warning that progress on inflation could stall, policymakers are also debating the downside risks of keeping rates in restrictive territory for too long. However, there is also the risk of easing too quickly, which could reaccelerate inflation.

The good news for investors is that rate-setting Committee members say the policy rate has likely peaked for the current tightening cycle.

Ultimately, rates could stay higher for longer if inflation remains elevated.

“Risks around the inflation forecast were seen as tilted slightly to the upside; although inflation had come in close to expectations throughout most of 2023, the staff placed some weight on the possibility that further progress in reducing inflation could take longer than expected,” the minutes stated.

This was not enough to support the greenback as the US Dollar Index (DXY), a gauge of the buck against a basket of currencies, slipped 0.05% to 104.03 at 18:55 GMT on Wednesday. The DXY is up 2.7% year-to-date.

US Treasury yields rocketed midweek following an abysmal Treasury auction.

The benchmark ten-year yield firmed above 4.32%. The two-year yield topped 4.65%, while the 30-year bond surged to 4.49%. The 20-year bond advanced to 4.615% after a $16 billion auction resulted in a higher yield and less-than-expected demand.

On the data front, mortgage applications declined for the third straight week by 10.6% for the week ending Feb. 16. The 30-year mortgage rate topped 7% again for the first time since the beginning of December.

The USD/CAD currency pair fell 0.16% to 1.3503, from an opening of 1.3524. The EUR/USD swelled 0.09% to 1.0819, from an opening of 1.0809.