markets: Hot US data could cool off local markets – Blue Barrows

Mumbai: Indian equities face the risk of a fresh round of sell-off early this week as the hammering of American and European stocks after Friday’s strong US jobs data may impede the recent recovery in the market.

The hot labour market in September means the US Federal Reserve might continue with its aggressive tightening to rein in inflation, giving further impetus to the dollar strength and pushing up US bond yields. This will keep India’s stock market on the edge, said analysts.

US stocks logged their third straight day of declines on Friday, with key benchmarks falling 2-3%. Analysts said the weakness on Wall Street may rub off on local stocks early next week. The Sensex and Nifty rose 3% last week from their two-month lows.

This week, investors will watch out for the release of minutes of the Fed’s September policy meeting on Wednesday and the September US consumer inflation report on Thursday. A stronger-than-expected inflation data will make the market more nervous about the Fed’s hawkish interest rate outlook.

“Commentary from the US policymakers on interest rates is the major risk to Indian markets as it poses an upside risk to the dollar index, and therefore businesses and equities,” said Rajesh Palviya, head of technical and derivatives research at Axis Securities.

Barclays said the recent economic readings in the US may not “seriously undermine” the Fed’s intention to continue with aggressive interest rate hikes of 75 basis points in November and 50 basis points in December.

“Any expectations for a dovish turn by the Fed out of global financial stability considerations, possibly as an outcome of next week’s IMF annual meetings, are very likely to be disappointed,” said Christian Keller, global head of economics research at Barclays, in a note to clients.

At home, the Nifty must close above 17,500 for renewed optimism in the market. From the September high of 18,096.15 on September 15, the Nifty fell nearly 7.5% to a two-month low of 16747.7 on September 30 – breaching the medium- and long-term trend indicators due to relentless selling by foreign funds.

“We are not expecting big moves on the index for the next two months,” said Pritesh Mehta, senior vice-president for research-institutional equities at Yes Securities. “We remain positive on cement, hotels, and FMCG sectors. Banks and automobile stocks may continue to consolidate and one should be a bit cautious.”

Palviya expects fresh positive momentum in sectors such as chemicals, pharmaceuticals, and cement. He believes automobile and banking stocks will continue to gain strength in the near term.