Nifty gains in 7 of last 8 weeks dust off recession fears, for now

The benchmark Nifty50 logged gains on all four days of the truncated week to cap its seventh weekly advance in eight weeks. In the past two months, the 50-share index has rallied nearly 16 per cent, shrugging off concerns around a global recession and unwinding of post- pandemic stimulus measures.

Sustained buying by foreign portfolio investors (FPIs) and hopes that the US Federal Reserve (Fed) may go slow on rate hikes have propelled the markets over the past eight weeks. For the Sensex, it was the sixth weekly gain in the past eight weeks. It had posted only marginal declines on the remaining two occasions.

On Friday, the Sensex gained 130 points, or 0.2 per cent, to end the session at 59,462. In the past eight weeks, it has added over 8,100 points, or 15.8 per cent. The Nifty, on the other hand, ended the session at 17,698, a gain of 39 points or 0.2 per cent.

A softer-than-expected US inflation data this week, triggered hopes that the Fed might go slow on rate hikes. The US consumer price index rose 8.5 per cent year-on-year in July, against a 9.1 per cent rise in June, which was also the highest in four decades. There was no rise on a month-on-month basis against a 1.3 per cent uptick in June. The inflation numbers raised hopes that price rise has peaked in the US.

Analysts said if inflation is coming under control in the US, and oil prices continue to get softer, there may not be a requirement for further rate hikes.

FPIs, after being net sellers worth Rs 2.2 trillion during the first half of 2022, have turned into buyers in the last two months. On Friday FPIs bought shares worth Rs 3,040 crore, according to provisional data from exchanges. So far in August, they have bought shares worth Rs 22,453 crore, taking their buying tally since July closer to the Rs 30,000-crore mark.

Valuation comfort after three months of consecutive fall and moderating crude prices made FPIs net buyers again. On Friday, the Brent crude traded around $100.8 per barrel, a decline of 20 per cent since early July. The ease in crude prices gave some comfort on the inflation front. The geopolitical tensions in Europe and rising Covid-19 cases in China led to disruptions in commodity prices and threatened of heightened inflation.

The satisfactory corporate earnings, improved monsoon, and the hope that India might be an outlier in a year of global economic slowdown has helped sentiment.

"FPIs have been continuous buyers throughout the month of August so far, thus driving the rally in the market. Softening of US inflation has further boosted market sentiment though Fed’s hawkish stance is a cause of worry. Though the overall momentum is positive, the market may take a pause over here and consolidate after the recent sharp rally. However, stock-specific action would continue as we are in the last leg of the results season," said Siddhartha Khemka, head of retail research, Motilal Oswal Financial Services.

However, doubts persist about the sustainability of the market gains as, while the Ukraine war continues to rage, a new geopolitical crisis is simmering in Taiwan. The valuation comfort is no longer present with indices trading near their long-term valuation averages.

The market will resume on Tuesday after the long Independence Day weekend.

"Markets will react to the macroeconomic data and other global cues in early trade on Tuesday. The recent buoyancy on the global front, combined with rotational buying across sectors, are pointing towards the prevailing upward movement to extend further," said Ajit Mishra, VP -- research, Religare Broking

On Friday, the market breadth was mixed, with 1,760 stocks advancing and 1,628 declining.  Half of the Sensex constituents gained. Reliance Industries rose 1.6 per cent and gave the biggest boost to Sensex. Oil and Gas stocks rose the most, and its gauge on BSE rose 2.5 per cent.