Domestic markets are likely to open on a positive note on Friday. SGX Nifty at 18,855 indicates a flat opening of about 50 points as Nifty futures on Thursday closed at 18,830 on the NSE. Analysts expect lacklustre trading as the valuation appears stretched. Unless some triggers emerge for bulls, the market may move within range they said. The strong support from foreign portfolio investors will keep the market downside protected. 

The focus will be on central bankers following the surprising and steep rate hikes by the Bank of England by 50 basis points and Turkey’s shocking 650 bps hike. Madhavi Arora,Lead – Economist, Emkay Global Financial Services Ltd, said the May monetary policy committee meeting delivered some coherence in views after the surprise pause in the earlier April meeting.

Focus on policy actions

The broad tone was “wait and watch,” with members speaking of the need to assess the lagged impact of policy actions thus far. “The uncertainty surrounding the monsoon garnered attention, with concurrent upside risks to inflation noted repeatedly, albeit there was divergence regarding how those risks were assessed. There was also emphasis on this pause being only for the current meeting, with no forward guidance offered, although there will be an eye on the evolution of monetary policy in DM economies,” she said. 

Optimism around growth was largely unanimous, but the risks from a potentially  deficient monsoon were mentioned again. “Going ahead, policy actions are likely to remain watchful and data-dependent, but the RBI remains unlikely to cut rates before the Fed in an uncertain and fluid global environment,” she added.

Asian stocks open weak

US stocks recovered sharply overnight after opening weak. While Nasdaq and S&P 500 closed in the green with a gain of about 1 per cent and 0.4 per cent, respectively, Dow ended in the red but flat. However, equities across Asia-Pacific are down in early deals on Friday.

Strong macros

Analysts also see little headroom from markets, given the stiff valuation. However, the underlying economic indicators remain strong, they added.

Emkay Wealth Management said: The monsoon worries due to the El Nino effect cannot be ignored. But the good part is the private capex that has started to look up and is positive for the economy. Though Indian markets continue to be fairly valued zone relative to global valuations, the FII are buying into Indian markets as it stands out strongly among growing economies. Domestic investors, too, continue to pour money into Indian equities. Strong India growth can support higher valuations in the medium term. The corporate commentary/ tax collections and consumer data indicate good growth in FY24.

As per them, select small and mid-caps can outperform as the valuation gap with larger peers closes. Emkay Wealth prefers structural growth companies over cyclical ones as the peak of the commodity cycle is behind us.

Mid-caps at overbought position

According to Ruchit Jain, Lead Research, 5paisa.com, The momentum readings on the midcap index are highly overbought and need to cool off, which can be seen either by some consolidation (time-wise correction) or some price-wise correction. Hence, traders must be selective in stock picking and look for buying opportunities on declines when the overbought set ups cool off. 

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