On March 20, the Sensex and Nifty embarked on a tumultuous journey, navigating through a landscape of fluctuating gains and losses before eventually settling marginally higher. Investors, adopting a cautious stance, found themselves in a state of anticipation as they awaited the much-anticipated policy announcement from the US Federal Reserve. Concurrently, local factors continued to exert their influence, weighing down on market sentiment.
As the clock ticked towards the late announcement by the American central bank, market expectations leaned towards a decision to maintain interest rates within the range of 5.25-5.5 percent. However, analysts remained skeptical about the potential for the Indian benchmarks to rebound, even in the face of explicit hints of near-term rate cuts from the Fed. Internal concerns, such as lofty valuations and recent regulatory interventions by SEBI and AMFI, added to the prevailing unease among investors.
Arvinder Singh Nanda, Senior Vice President at Master Capital Services, shed light on the underlying factors behind the recent downturn in Indian equities. According to Nanda, the decline is primarily rooted in technical factors and valuations, rather than external influences, thereby suggesting that the impact of the Fed’s commentary may be limited.
The past five trading sessions have witnessed a corrective phase, with both the Sensex and Nifty experiencing fluctuations. Notably, the Sensex registered a decline of nearly 1 percent during this period, underscoring the prevailing uncertainty and cautious sentiment permeating the market landscape.
According to Nanda, the current market sentiments have already factored in the Federal Reserve’s decision to maintain its current stance, with expectations leaning towards potential rate cuts later in the year. However, he cautioned that if the Fed’s commentary aligns with these expectations or takes a slightly hawkish tone, the market’s reaction may be subdued.
Trivesh D, the Chief Operating Officer at Tradejini, emphasized that the reduced impact of the Fed’s rate decisions on the Indian market stems from a decreased reliance on foreign portfolio investors (FPIs). “This shift reduces the market’s susceptibility to significant fluctuations triggered by Fed rate adjustments,” he explained.
The direction of the US market, particularly following the Federal Reserve’s announcement, holds significant sway over global market sentiment.
In India, market activity is anticipated to remain within a consolidation phase, with VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, foreseeing a trend of “buying on dips” in large-cap stocks.
Once investor concerns linked to domestic factors ease, any indication from the Fed regarding potential rate cuts starting June could markedly uplift market sentiment. Akshat Garg, Senior Manager at Choice Wealth, pointed out that “Lower interest rates in the US often translate into increased availability of US dollars, stimulating greater foreign portfolio flows into Indian markets.”