Markets to open on positive note

Cluesless Indian stock markets are likely to open on a flat note with a positive bias on Wednesday. Global cues are mixed with Asian stocks ruling firm in early deals on Wednesday, even as the US stocks slipped sharply overnight.

SGX Nifty at 16,110 (8am IST) indicates a positive opening, as Nifty futures on Tuesday closed at 16,044. Analysts expect the market to continue to move in a narrow range. Economic activity remains resilient despite adverse global market conditions, said analysts.

IIP, inflation data

The Index of Industrial Production grew 19.6 per cent y-o-y in May, thanks to the base effect. According to analysts, it was almost in line with their expectations.

Nish Bhatt, Founder & CEO, Millwood Kane International, said: "It is encouraging to see industrial production rising over the past few months, but most of it is due to the lower base of last year, when the country witnessed the second wave of the pandemic. Frequency indicators such as higher tractor sales, and sales of commercial vehicles in rural areas point to a pick-up in demand. We expect industrial production activity to continue its upward trend.”

Separately, India’s June inflation came in at 7 per cent YoY, similar to that in May and slightly lower than the analysts’ forecast of 7.3 per cent. Lower inflation was due primarily to lower than expected food inflation (7.8 per cent v/s our forecast of 8.8 per cent).

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Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank, said: " CPI inflation remained broadly steady around 7 per cent, bringing the Q1-FY23 average to 7.3 perc cent — marginally lower than RBI’s projections of 7.5 per cent. Nonetheless, inflation is expected to remain elevated, with only a gradual descent through the rest of the year. While softening global commodity prices provide some relief, gains will be limited due to a weakening INR."

Global stocks

Wall Street ended in negative territory on Tuesday ahead of inflation data. The Dow Jones Industrial Average fell 192.51 points or 0.62 per cent to 30,981.33, the S&P 500 lost 35.63 points or 0.92 per cent to 3,818.8 and the Nasdaq Composite dropped 107.87 points, or 0.95 per cent, to 11,264.73. However, markets in Japan, Korea and Taiwan gained sharply in early deals on Wednesday. Australian stocks, which opened on weak note, too, recovered to rule in flat territory.

As global central bankers decided to support the economy and stock markets, equities are getting support at lower levels. said analysts. After Chinese bankers, Taiwan has now committed support to the stock markets. Taiwan's National Financial Stabilization Fund has been authorised to support local equities after its committee concluded an extraordinary meeting Tuesday, according to the Ministry of Finance.

Equity markets have outperformed the global markets on YTD basis, showing relative resilience on the back of healthy macro data, strong DII flows and a robust Nifty earnings outlook so far. Further, FIIs have reduced their selling intensity drastically in July giving some relief to the market, said Motilal Oswal in its India Strategy report.

Valuations moderated

After the recent correction, the valuation of Indian stocks markets has moderated from elevated levels, said analysts.

"Valuations for the Nifty have moderated to 18.7x FY23 EPS, in line with its long period averages. We currently prefer large caps given that midcaps continue to trade at a premium. We maintain our positive view on BFSI, Auto, Retail, QSR, Defence, Real Estate, while selectively looking at consumer," the report added.

According to Ruchit Jain, Lead Research, 5paisa.com, the correction in the global markets, rise in the US Dollar Index and selling by FIIs have been the reasons for the nervousness in equity markets. However, the index has been forming a ‘Higher Top Higher Bottom’ structure on lower time frame charts and until this structure changes, this should just be read as a pullback move.

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