Dalal Street gains may be short lived, analysts await data ahead of Fed meet

MUMBAI: At the end of a week that began with a 6% stock market plunge that wiped outRs 7 lakh crore of investor wealth, a large part of those losses had been recouped but opinion was divided over prospects for the immediate future. Stocks extended gains for a second day, mirroring advances in the rest of Asia and US markets that rose overnight on GDP growth that was better than previously estimated.

Indian stocks didn't run up too far as traders cut positions ahead of the weekend. Analysts said the rally could be short-lived as investors await key economic data from the US ahead of the crucial Federal Reserve meeting next month that could determine when and whether interest rates will be raised.

Meanwhile, US stocks declined at opening on Friday, suggesting that the two-day relief rally was at an end. Earlier, stock futures had dropped, signaling this. The Standard & Poor's 500 Index is on track for its worst month since May 2012, Bloomberg said, following global turmoil amid China's economic woes.


The BSE Sensex ended at 26,392, up 161 points, or 0.61%, on Friday. The NSE Nifty closed just above the psychological 8,000 level. The index, after hitting a high of 8,091 earlier in the day, settled at 8,001.95, up 53 points or 0.67%

"I still think there is more volatility ahead for global markets," said S Naganath, president and chief investment officer, DSP Black-Rock MF. "We have to be watchful, especially in terms of further currency volatility in Asian region, and that may well be something to look out for in the next month or two before we can say that volatility has truly subsided."

NSE's Volatility Index jumped 5.8% to 23.33 on Friday, indicating traders believe there is more risk for the market in the near future.

Still foreign institutions turned net buyers on Friday, albeit by a marginal degree, after seven consecutive days of selling, even as the rupee weakened further to 66.16 versus the dollar from 66.05 on Thursday. Foreign institutional investors, having sold stocks worth a net Rs 16,250 crore in the past seven trading days, bought equities worth Rs 56 crore, according to provisional BSE data. Globally, emerging market funds have seen exits double to $8 billion from $4 billion of selling last week.

Some investors didn't want to read too much into the rise. "I do not take today's rebound very seriously for the simple reason that the markets were oversold," said Phani Sekhar, fund manager, Karvy Stock Broking. "So I am not too gung ho about any stability coming back to the markets."

Domestic brokerage Ambit Capital cut its Sensex target to 28,000 from 32,000 and said there was a high risk of the benchmark dropping to as low as 22,000, as the odds appear to be in favour of continued yuan devaluation. The current market turmoil was sparked by the yuan's devaluation on August 11 as China struggles to tackle the effects of a slowdown.

"In the short term, volatility might continue as global events have an overwhelming impact on the Indian markets," said Navneet Munot, chief investment officer, SBI Funds Management. "However, our long-term growth outlook is intact."

The market is closely watching how US jobs data will turn out next week. On the domestic front, it will be looking to August auto sales and purchasing managers' data to see whether an economic revival may be taking hold as suggested by ministers and others recently, experts said. To be sure, Moody's has cut its forecast for economic growth this year because of weak monsoon and lack of reforms.

"The US Jobs data next week has the potential to influence markets," said Ravi Shenoy, associate vice-president, research, Motilal Oswal Securities. Sector-wise, markets presented a mixed bag. The BSE bank, realty and pharma indexes were marginally down while media, IT and energy were slightly higher.