After the US Federal Reserve cut its key rate by 50 percent or 50 basis points (bps) late Wednesday, analysts suggested that investors stock up on sensitive assets such as banks, cars, and real estate.
“Our portfolio strategy will continue to be invested in high-quality companies with a mix of sensitive mutual funds and long-term growth,” said Rakesh Parekh, managing director and co-head, Portfolio Management Services, JM Financial.
On Friday, Nifty Bank touched a fresh high of 53,711, while the Financial Services index rose to a high of 24,737. The rally in the Nifty Bank was led by private sector banks, whose individual sector on the NSE touched a fresh high of 27,001.5.
Indices tracking the consumption sector — Nifty FMCG, and Nifty Consumer Durables — also hit new highs, at 65,893 and 43,651, as investors expected a price cut to boost demand.
Meanwhile, in the last one year, Nifty Bank has increased by 16.8 percent, Nifty FMCG by 25 percent, Nifty Auto by 57.2 percent, and Nifty Realty by 87 percent.
“This is the right time to park some funds in banks, households, and the auto sector as a whole from a medium to long term perspective as markets will again, now, experience low interest rates in India as well,” said Vikas. Sethi, managing director, Sethi Finmart.
All eyes are on RBI
Given the jumbo rate decided by the US central bank, analysts, at home, expect the Reserve Bank of India (RBI) to follow the Fed’s strategy soon.
A deeper 50-bps rate cut by the Fed, extended by another 50-bps to the end of calendar year 2024, may put upward pressure on the rupee. This may force the RBI to reduce its base position and focus on ‘inflation’, say analysts.
Besides, an above average monsoon can help the Kharif harvest and moderate food inflation. This will make the RBI’s decision easier, and increase the chances of an October/December rate cut, said a report by Emkay Global Financial Services.
IT, Pharma is gaining again
Despite the rate sensitivity, the US Fed’s confidence to reach a ‘slow rate’ is expected to keep sectors such as information technology (IT) and metals booming.
“If the US continues to cut prices on the back of a strong economy, steel, IT, and other export-oriented sectors such as pharma may benefit,” said Vikas Sethi of Sethi Finmart.
In bonds, Nifty Metal, Nifty IT, and Nifty Pharma added 1.97 percent on the NSE.
A word of warning
That said, the expensive valuations of India’s stock markets could limit gains in each of these sectors, analysts warn.
“Despite the rate cuts, investors should remain cautious in the markets as there will not be any significant change in the sectors,” said Ambareesh Baliga, an independent market analyst.
Concurring with this view, Emkay Global said the banking sector is under correction due to low growth, and may not be the best play at lower levels.
“In the short term, the management of bad debt suggests a pressure on the capital front when the reduction cycle begins. Banks may see a meeting of benefits due to the short-term improvement in capital and improved deposit growth. However, we see this as an opportunity. to reduce our positions and maintain our low weight position, “said brokerage.
In addition, the auto industry, along with real estate, has also seen significant outperformance in the past and, thus, may see muted gains.
“Although we believe that there are opportunities for growth in these sectors (automobiles and real estate), it may be more focused on individual stocks and not in all sectors,” the report reads.
First published: Sep 20 2024 | 3:07 PM IST