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The domestic markets are expected to open with a downward bias on Thursday as well, amid the aftershocks from Fitch’s US rating downgrade. However, analysts expect the market to settle in the later half of the day, and may attempt a recovery. Gift Nifty at 19,520 indicates a gap-down opening of about 75 points. Asian stocks were down in early trade on Thursday, tracking a sharp slide in US stocks overnight. However, US futures are up moderately in early deals on Thursday, giving a mixed signal.
‘Overweight on India’
A team of Asia strategists have raised India’s rating to overweight, saying the relative valuations are “less extreme” than in October and the nation’s reform and macro-stability agenda supports a strong capex and profit outlook, said a Bloomberg report.
According to analysts, this is a positive surprise and limits the downside of Indian stocks. Foreign portfolio investors who have moderated their inflows in the last few days, may return as buyers, they said.
Global mood
Jaykrishna Gandhi, Head - Business Development, Institutional Equities, Emkay Global Financial Services, said: Domestic markets saw the first round of correction breaking the important level of 19,560 and closing below that. Overall, the US markets remain in a bit of an uncertain mode as valuations and a concentrated bunch of stocks have driven the market rally (largely driven by AI). For the coming week, we expect the Indian market to take a breather along with some global weakness, he added.
Tata Mutual Fund said: “We believe that the Fitch rating downgrade is unlikely to lead to a major impact in the debt, currency and commodity markets, as the previous rating downgrade for US debt came in 2011 by S&P, which had then led to steep stock market declines and rising bond yields. Currently, we have seen some correction in equity markets globally due to risk-off sentiment and minimal impact on bond yields, currency and commodity markets.”
Analysts also said the fall is healthy and may provide buying opportunities in some stocks.
To discount downgrade
Dr V. K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said: The US credit rating downgrade by a notch is sentiment negative for global markets. The US 10-year bond yield spiking above 4 per cent and the dollar index rising to 102 are near-term negative for emerging markets.
“But it is important to note that the downgrade doesn’t say anything that the market doesn’t know. So, the negative knee jerk reaction will be short lived. Globally, equity markets have been rising on the US economy’s soft landing narrative. The downgrade doesn’t alter that.”
Santosh Meena, Head of Research, Swastika Investmart Ltd, said: Nevertheless, a rating downgrade could provide some investors an opportunity to take profits, leading to a possible pull-back in the market.
“The results season thus far has been mixed, with 18 Nifty companies beating estimates and 15 missing,” said Gandhi. However, the mid and small-cap space has seen earnings upgrades, which has resulted in a continued rally in the space, while the broader market takes a breather. China, on the other hand, has been grabbing eyeballs with the recent policy document by the NDRC, which is now focusing more on retail growth and providing a boost to the economy, while falling short of handing out stimulus, he added.
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