Domestic markets are likely to continue the bullish momentum on Monday despite valuation concerns. Analysts said global markets are in the positive zone as the US reached an agreement on the debt ceiling. US President Joe Biden and his Republican opponents have announced they have agreed in principle to raise the US debt ceiling and avert a default.

SGX Nifty at 18,704 signals a gap-up opening of about 150 points for Nifty, as Nifty futures, on Friday, closed at 18,573. Experts said that foreign portfolio investments continue to pour into Indian markets thanks to strong fundamentals.

Healthy FPI flows

“FPI flows into India reached a nine-month high of ₹37,316 crores in May (till May 26),” said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services. Adding that the sustained buying by FPIs has lifted Nifty by 2.4 per cent in May. “India is among the best-performing markets like Japan, Taiwan, South Korea, and Brazil, while other markets, both developed and emerging, are struggling,” he said.

FPIs have been buyers across sectors. They invested in sectors like automobiles, capital goods, health care, oil & gas, and telecom. Massive buying was witnessed in financial services, particularly banking. 

Most equities across Asia-pacific region are up at least one per cent.

US data

IFA Global Research, in a note, said, that after a week of negotiations, Republicans and Democrats are closing in on locking in a two-year agreement that would restrain federal spending and lift the debt ceiling past next year’s US presidential election. Meanwhile, most of the US data that came out this week beat expectations. US Q1 GDP was revised higher in the second estimate. Personal consumption and the PCE price index were also revised higher. April headline PCE and core PCE came in above estimates as well, it further said.

“The market is pricing in a 69 per cent probability of a 25 basis point hike in the June meeting by the Fed. The market was pricing in 2.5 cuts in 2023 not long ago but has now largely priced them out after the Fed minutes and hawkish commentary from Fed members this week,” it further said.

Nifty may hit record high

Amist all these, a new record high for Nifty is possible. However, there is no scope for a sharp rally since valuations are not favourable at record levels, said Vijayakumar.

According to Vinod Nair, Head of Research at Geojit Financial Services, domestic investors traded cautiously during the week; however, driven by the strong growth forecast for the Indian economy, the market witnessed a smart recovery towards the end. The IT and pharmaceutical sectors rebounded due to bargain opportunities and pent-up demand. “With the upcoming Q4 GDP data, it is anticipated that India’s FY23 GDP will surpass the earlier projected 7.0% growth rate, thereby improving the overall outlook of the Indian economy,” he added.

Monsoon eyed

After Q4 corporate results, according to analysts, all eyes are now on monsoon progress. Q4 results were largely on expected lines, they added.

“The Indian Meteorological Department has retained its forecast of a normal monsoon even as it expects ‘below normal’ rainfall in June,” said Deepak Jasani, Head of Retail Research, HDFC Securities. Adding that the southwest monsoon seasonal rainfall over the country as a whole is likely to be 96% of the long-period average with a model error of +/-4%, officials from the IMD said in its second forecast for the year on Friday. The 2023 June rainfall averaged over the country as a whole is most likely to be below 92% of LPA, according to the IMD.