Fed rate-cut euphoria takes indices to peaks, brings down in no time

The Indian market's response to the US Federal Reserve's 50 basis point rate cut on Wednesday was relatively subdued compared to its global and Asian counterparts. Instead of celebrating the move, Indian investors opted to book profits during Thursday's trade, resulting in only modest gains for the frontline indices.

The trading day started on a positive note, with the rate cuts fuelling optimism. This led the Nifty 50 to surpass the 25,600 mark, reaching a record high of 25,611 points. Similarly, the Sensex also hit a milestone, crossing 83,700 points to touch a new high of 83,773 points.

However, as the day wore on, both indices began to lose their earlier gains. This decline was primarily driven by losses in the PSU, telecom, and IT sectors. While banking stocks maintained their upward trajectory for the second consecutive trading day and FMCG stocks provided some support, they were not sufficient to push the indices higher.

By the end of the session, the Nifty 50 recorded a slight gain of 0.15 percent, closing at 25,415 points. The Sensex finished with a gain of 0.29 percent, ending at 83,184 points. Out of the 50 Nifty constituents, 29 stocks ended in positive territory.

NTPC stood as the top gainer in the index with a gain of 2.3 percent. Other significant gainers included Kotak Mahindra Bank, Titan Company, Hindustan Unilever (HUL), Nestle India, Tata Consumer Products, Maruti Suzuki India, and Bajaj Auto, all of which made gains between 0.8 percent and 1.7 percent.

Experts suggest that the markets had already factored in the US Fed's aggressive rate cut, which limited the extent of the rally in today's session. Amit Golia of MarketsMojo said, "The Nifty 50 has climbed 2.1 percent over the past 10 days in anticipation of the rate cut, although market activity remained relatively flat today, with early excitement tapering off by the afternoon."

"This suggests that markets may have already priced in the rate cut and are looking ahead to other clues. Additionally, crude oil prices are trading at 52-week lows, and essential metals like iron ore and steel are hovering near multi-year lows—clear indicators of a slowing global economy," he said.

"Looking forward, markets may shift their focus to how these rate cuts affect corporate earnings and broader economic health, especially if global demand continues to weaken," Amit Golia added.

Heavy loss for midcaps, smallcaps 

The mid and small cap stocks have suffered heavy losses in Thursday's trade, with the Nifty Midcap 100 index tumbling by 0.71 percent, dropping below the 60,000 level to reach 59,351 points. At one point, the index tumbled by 2.3 percent, but later it recovered at the end of the trade. The Nifty Smallcap 100 index suffered even badly as it ended the session with a loss of 1.26 percent at 19,144 points.

Commenting on today's sharp fall in mid- and small-cap stocks, Santosh Meena of Swastika Investmart said, "The midcap and smallcap segments, particularly sectors like defence, railways, and capital goods, which have performed exceptionally well over the past 2-3 years, are now witnessing a sharp correction."

"Valuations have long been a concern in the broader market, yet these stocks continued to rally despite being considered expensive. However, there always comes a point when market euphoria fades. Domestic institutions, too, have shown signs of caution, holding significant cash reserves at elevated levels. I believe this correction could extend further, presenting a strong buying opportunity in high-quality stocks for long-term investors," Santosh Meena added.

Bank Nifty prospers

The Nifty Bank index closed above the 53,000 mark for the second time in 2024, approaching its all-time high of 53,357 points set on July 4. Today's peak reached 53,353 points before settling at 53,037 points, marking a gain of 0.54 percent for the session.

This rally, which continues the index's strong performance over two consecutive days, was fuelled by significant gains in major banking stocks. AU Small Finance Bank (AU SFB), IDFC First Bank, and Kotak Mahindra Bank all saw increases between 1.4 percent and 3.9 percent.

Of the 12 index constituents, 8 ended the day in the positive territory. The index has now risen 3.28 percent in September, its largest monthly gain since June.

Vinod Nair of Geojit Financial Services said, "The benchmark indices concluded with a minor gain after hitting record highs post the US Fed's more than expected interest rate cut of 50 bps and hinted for further reduction.

"The substantial rate cut sparked concerns over the global slowdown, resulting in profit booking in mid- and small-cap trading at premium valuation. Meanwhile, domestic heavyweight sectors like banking and FMCG saw buying interest, driven by foreign inflows and the RBI's monetary easing expected in October," he noted.

(By arrangement with livemint.com)