Markets Set to Rise on Positive Global Cues: US Fed Holds Rates
The domestic markets are expected to see a sharp rise at open, thanks to positive global cues triggered by US Federal’s expected stance.
Holding the key interest rates unchanged for 5th straight time at 5.50 per cent, the US Fed chief said the central bank continues to expect three interest rate cuts in 2024. The Fed said the inflation “has eased but remains elevated” and it does not expect rate cuts until it has “greater confidence” on inflation moving to 2 per cent.
Following this, the US stocks maintained its positive momentum and closed around one per cent higher. The equities across Asia Pacific region, too, jumped sharply with Japan’s Nikkei hitting record high.
On US Fed’s decision, Dhawal Ghanshyam Dhanani, International Equity Fund Manager, SAMCO Mutual Fund, said that there were only minimum alterations in their official statement. While the economic growth forecast was revised upwards, the Dot-Plot ‘signals’ three rate-cuts in 2024, while 2025, 2026, and beyond are all seeing chances of less aggressive cuts. Gold and stocks have outperformed even with the dollar rising modestly and bitcoin stealing the show.
“Stocks have rallied since the last meeting despite a plunge in 2024 rate-cut expectations from 6 to 3. With BoJ scrapping radical interest rate regime, hiking interest rates in 17 years shows an independent approach undertaken by central banks across the globe post covid. Global markets will take its own sweet time to reset to these nuances,” he added.
Gift Nifty at 22,077 signals a gap-up opening of 150 points for Nifty50.
The dollar index (103.22) had come down sharply from around 104.15. The Dow Jones Industrial Average (39,512.13) had surged over a per cent on Wednesday.
However, with India entering to election mode, analysts expect the market to move in a range. Besides, as the settlement of March contracts nearing, analysts expect volatility in the market.
Small-cap may remain under pressure
Meanwhile, Motilal Oswal in a report said that small-cap and mid-cap space may face headwinds.
Alpha Strategist report by Motilal Oswal Private Wealth said a review of Q3-FY24 earnings suggests that the earnings are likely to revised in the broader market (excluding the Nifty50 companies)
The margin tailwind from Q4 FY24 onwards will be receding, necessitating a recovery in revenue growth to drive earnings ahead. Over the last 12 months ending February 2024, the mid- and small-cap indices have significantly outperformed the large cap index (Nifty50), it said.
Also read: Stocks that will see action today—March 21, 2024
“Consequently, the valuations in terms of Price to Earnings ratio for these indices is meaningfully higher than their respective long-term (10 year) average valuations. For the Mid Cap 100 index, the 1-year forward PE is 26x, much higher than the 10-year average of 21x,” it said adding, “similarly, the 1-year forward PE for the Small Cap 100 index is 21.5x vs its 10- year average of 16x.”
While corporate earnings over the next couple of years is expected to remain steady, it would not be prudent to expect the pace of growth to be similar to the previous 4 years. Hence, there is a likelihood that the current valuations for the mid and small-cap indices could witness mean reversion, it added.