Indian stock market: Gift Nifty indicates gap-down opening on April 12 after US inflation dispels Fed rate cut hopes

Also Read: US Fed rate cut unlikely in June as US inflation hots up. What this means for Indian investors and what should they do?

Coming to current levels, NSE International Exchange (NSEIX) data suggests that Gift Nifty is trading around 22,582 (up 0.12 per cent) as against the Nifty 50 futures closing of 22,804 on April 10. Gift Nifty is more than 200 points lower which indicates a gap-down opening for Nifty 50 on Friday, April 12. The gap down should be a speed bump in an ongoing uptrend in the Index. This gap would most likely get bought into, according to market analysts.

On Wednesday, April 10, domestic equity benchmarks witnessed healthy buying across sectors despite mixed global cues. The 30-share Sensex closed above the 75,000 mark for the first time while the Nifty 50 also settled at its fresh closing high in the previous session. Today, markets are closed due to Id-Ul-Fitr.

Sensex closed 354 points, or 0.47 per cent, higher at 75,038.15, before hitting its intraday high of 75,105.14. The Nifty 50 touched its fresh all-time high of 22,775.70 before settling at 22,753.80, up 111 points, or 0.49 per cent.

How sticky US inflation impacts Indian markets

The US consumer price index (CPI) rose 0.4 per cent month-on-month (MoM) and 3.5 per cent year-on-year (YoY), above the Street expectations of 0.3 per cent MoM and 3.4 per cent YoY, according to data released by the Labor Department’s Bureau of Labor Statistics released on Wednesday. 

Core inflation, which the Fed tracks closely, grew 0.4 per cent MoM against the expectations of a 0.3 per cent increase. On a YoY basis, core inflation grew 3.8 per cent while Street expected an increase of 3.7 per cent.

This is the third straight month when the inflation reading is well above the Fed’s two per cent target, provide concerning evidence that inflation is stuck at an elevated level after having steadily dropped in the second half of 2023. Market analysts anticipate that the Fed would delay cutting interest rates until September 2024.

‘’This acceleration in price rise from 3.1 per cent in January and 3.2 per cent in February to 3.4 per cent in March has dashed hopes of a rate cut in June. This year began with market expectation of six rate cuts. Now the expectation has come down to a maximum of three, perhaps two. Even now a total of 50bp rate cut is possible this year and these will be backloaded,” said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Sticky inflation in the US is bad news for emerging markets like India. It reduces the chances of rate cuts, which would normally boost the dollar and US bond yields. This, in turn, triggers foreign capital to flow out of emerging economies.

‘’With the US Federal Reserve reiterating multiple times that any easing monetary policy stance would be data driven, we believe that market expectations of three rate cuts this year looks an uphill task now. The spillover effect of a no near term rate cut was visible on bond yields which moved closer to the 4.6 per cent mark and is not good news for riskier assets in emerging economies,” said Shreyansh Shah, Research Analyst, StoxBox.

How is Sensex, Nifty 50 expected to open on April 12?

‘’Indian markets are set to open in the red tomorrow as a hot consumer price inflation report in the US poured cold water on hopes of a rate cut in June. Additionally, the minutes of the last FOMC meeting released yesterday showed that some policymakers remained concerned about the inflation trajectory towards the two per cent target,” added Shah.

Experts also said that strength in crude oil prices and the Indian government’s decision to end tax-relief for Mauritius-based FPIs is likely to play negatively on market sentiment. The focus now shifts towards US producer price inflation data due later today along with the Indian CPI and start of corporate earnings season tomorrow for further cues. 

Analysts maintain that overall, the market may remain volatile, and investors should exercise caution and diversify their portfolios.

Technical View:

According to Rahul Ghose, CEO, Hedged.in, market participants should watch out for 2 things on the Index today if the gap down is not bought into:

1)The weekly candle close: If the weekly candle closes below 22,500 on the 12th of April, this could trigger a period of consolidation or a short correction in the Index

2)If 22,300 breaks on the Index: This would trap a significant quantity of put writers that are present right from 22,500 to 22,800 levels and can lead to a quick move on the downside.

If the initial dip is bought and 22,500 is held, we should see smooth sailing keeping the above two levels in mind.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.

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Published: 11 Apr 2024, 05:00 PM IST