Market update. Early Santa Claus rally to continue on Powell’s “dovish” comments

The new calendar month is expected to start off with a bang for domestic markets as the US stocks jumped sharply following “dovish” comments by the US Federal Chief Jerome Powell.

SGX Nifty at 18,986 signals a 100 points gap-up opening for Nifty futures which closed at 18,874 on Wednesday. With foreign portfolio investors (FPIs) stepping up their purchase, analysts expect the momentum to sustain, despite the market is in overbought position. Analysts also advised traders not too short despite a strong rally in the last few days.

“The market is not showing any signs of exhaustion. So, it is advisable not to short the market yet,” they said.

“Time to slow rate hike pace”

“Federal Reserve Chair Jerome Powell on Wednesday said it was time to slow the pace of interest rate hikes while signalling a protracted economic adjustment to a world where borrowing costs will remain high, inflation comes down slowly and the US remains chronically short of workers,” Reuters reported.

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Nifty made yet another fresh high on Wednesday and ended the month with a 4.14 per cent gain, said Deepak Jasani, Head of Retail Research, HDFC Securities. MSCI rebalancing trades and basket buying by FPIs in the last half hour pushed up indices towards the end of the session.

“Cash volumes on the NSE were the highest in 6 months. Mid-cap index outperformed the Nifty even as the advance decline ratio surged to 1.73:1,” he said and added: “A Santa rally appeared to come early for some markets, with Asian shares set for their strongest month since 1998 and emerging market stocks poised for their biggest monthly surge since 2009”.

US, Asia stocks jump

Markets across Asia-pacific region trading with a positive bias as most of them are up at least 1 per cent in early deal on Thursday. Overnight, the US stocks displayed one of the resilient recovery with Dow, Nasdaq and S&P 500 edging up 2.18 per cent, 4.4 per cent and 3.09 per cent, respectively.

Vinod Nair, Head of Research at Geojit Financial Services, said the domestic rally since October was triggered when the global market started to perform well after a long period of consolidation in 2022. It was extended when crude and commodity prices started to fall in November, uplifting India’s corporate earnings outlook.

“However, shortly, markets will have to digest the Fed & RBI policy meetings in December, which will determine the future trend of interest rates and economic growth,” he said.

Crystalgazing GDP numbers

The GDP growth in Q2 FY23 came in at 6.3 per cent.

According to CareEdge, GDP numbers is broadly in line with expectations.

“On a sequential basis (QoQ) there is an acceleration of more than 3 per cent in Q2 GDP, which is a positive aspect,” it said and added: “The economic growth has been led by the services sector, specifically the trade, hotel and transportation sectors which have seen a healthy sequential rebound in Q2. “

“However, the contraction in manufacturing sector is worrying. The manufacturing sector has continued to suffer from high raw material prices and uneven recovery in demand. This was also reflected in the decline in profit margins of corporates in Q2,” it added.

Madhavi Arora, Lead Economist, Emkay Global Financial Services, said: “Going ahead, even as recovery in domestic economic activity has yet to become broad-based, protracted global drags in the form of still-elevated prices, shrinking corporate profitability, demand-curbing monetary policies and diminishing global growth prospects weigh on output. “This will put pressure on the domestic growth story, which still lacks the next lever of secular growth,” she added.

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