After a Trump-induced stellar rally, domestic markets are likely to return to normalcy. Gift Nifty at 24,450 signals a gap-down opening of about 130 points as Nifty futures on Wednesday closed at 24,587. Analysts say domestic macro events and the Fed meet will remain in focus. With foreign portfolio investors continuing to remain in sell mode, the rally may peter out, they added. Q2 results of India Inc are not supportive of valuation, they further said.
Emkay Global Research said a confirmed Trump presidency and higher odds of a Red Sweep have led to a global risk-on rally, but underlying fundamentals suggest there is more steam to the volatility and Trump trade. “Medium term — watch out for structurally higher volatility in global inflation and growth ahead, implying the conventional investing playbook of ‘buy the dip’ or ‘time rallies’ during the sustained equity bull markets of the ‘Great Moderation’ need to be redefined. Rising term premium will likely be the next driver of higher yields, whereas FX wars would be the biggest asset class risk unfolding over the coming years. Near term — watch for DXY to re-touch 110, while USD/CNY gravitates toward 7.50. For India, FX and rates will be the first casualty, with equities only temporarily rejoicing the Red Sweep. There will be natural weakening bias for INR, led by CNY, while mild G-Sec bear-flattening may make a comeback. The spillover of bond/FX volatility via the global financial markets route would mean the aim of financial stability may even precede inflation management for the RBI,” the note from domestic brokerage Emkay added
According to Arindam Mandal, Head of Global Equities at Marcellus Investment Managers, “Trump and the Republican sweep will unlikely alter long-term investment themes, but it would likely boost sentiment in cyclical sectors like Industrials and Financials, which might come at the cost of mega-cap stocks, that might face near-term pressure. With Trump’s victory a near-term hawkish stance is more likely. For global investors, this may mean continued US dollar strength despite some views that Trump prefers a weaker dollar — an idea contradicted by the dollar’s appreciation during his first term, especially post-2018 tariffs. Trade tensions with China could also persist, potentially benefiting select Indian exporters over the longer term”
Siddhartha Khemka, Head – Research, Wealth Management, Motilal Oswal Financial Services Ltd, said: The markets will react to the Fed and BOE interest rate decision on Friday. The Fed committee is likely to cut interest rates by 25bps. We expect markets to see a near-term bounce back due to positive sentiment globally, he said.
Meanwhile, the Asia-Pacific markets are mixed. Nikkei, which jumped on Trump winning news on Wednesday, slipped 0.6 per cent. While SGX of Singapore jumped over one per cent, others in the region are down marginally.
According to analysts, derivative trading, too, indicates a cautious outlook.
“Despite the recent recovery, options data shows caution among traders. Call writing remains dominant, reflecting a largely bearish stance, with open interest highest at the 25,000-strike call (1.38 crore contracts) and the 24,000-strike put (87.97 lakh contracts). Activity is focused in the 24,500-24,800-call range and 24,000-24,300 put range, indicating resistance around 24,500 and support near 24,000. Increased put writing in the 24,000-24,300 range suggests buyers are betting on higher prices, while a reduction in call positions points to emerging bullish momentum. The put-call ratio (PCR) has edged up from 0.67 to 0.72, reflecting a cautious but gradually improving sentiment. The current “max pain” level, situated at 24,400, is likely to play a crucial role in guiding the index’s movement,” said Dhupesh Dhameja, Technical Analyst, SAMCO Securities
