Synopsis: The U.S. labour market remains resilient, showing signs of a slowdown rather than deterioration, while inflation appears under control. This scenario points towards a potential soft landing for the U.S. economy amid a declining interest rate environment. The anticipation of the Federal Reserve initiating a rate-cut cycle has triggered optimism across global markets, including India.
The U.S. labour market data released overnight showed encouraging signs of resilience, with jobless claims hitting their lowest level since May.
This points towards a slowdown rather than a deterioration in the U.S. economy, with inflation under control.
These developments raise hopes for a soft landing in the U.S. economy, bolstered by an expected decline in interest rates.
The potential for the Federal Reserve to initiate a rate-cut cycle has sparked optimism in the financial markets globally.
As a result, both the S&P 500 index and Dow Jones Industrial Average surged by up to 1.7% overnight.
The positive sentiment quickly spread across Asian markets, with indices in Hong Kong, Japan, and Korea experiencing significant gains.
The Indian markets responded in tandem, as the BSE Sensex soared 1,017.63 points (1.22%) to close at 84,202.43, a record high.
Similarly, the Nifty gained 250.75 points (0.99%) to reach 25,666.55, with a record high of 25,692.70.
Bullish Global Trends and FPI Inflows:
The current global bull market is being led by the U.S., where positive labour data has reduced fears of a significant economic slowdown.
According to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, the strength of the U.S. economy, along with controlled inflation, suggests a soft landing under a falling interest rate scenario.
This environment is expected to be favourable for global equity markets, including India.
On Friday, Mahindra & Mahindra emerged as the top performer on the Sensex, with a gain of 4.03%, followed by strong showings from JSW Steel, Maruti Suzuki, Tata Steel, and Power Grid, all of which rose between 2-4%.
Analysts at ICICIdirect forecast that the prospect of U.S. rate cuts will encourage foreign portfolio investors (FPIs) to increase their exposure to emerging markets, including India.
The combination of foreign inflows and robust domestic liquidity bodes well for the Indian market in the near term.
Market Outlook and FPI Trends:
Despite recent market volatility, midcap and smallcap indices showed signs of recovery, bolstered by strong performance in the public sector unit (PSU) stocks.
Emkay Global, in its latest strategy note, suggests that if the U.S. Fed's rate-easing cycle triggers a risk-on rally, FPI inflows to India could accelerate, providing additional market momentum.
Data from the National Securities Depository Limited (NSDL) indicates that FPIs purchased Indian stocks worth Rs. 33,281 crore in September 2024, with net inflows for the year amounting to Rs. 42,300 crore.
This is significantly lower than the Rs. 1.7 lakh crore recorded in 2023, signalling room for further growth in FPI investments.
ICICIdirect also highlighted that September historically presents buying opportunities, as it has been a volatile month with an average decline of 3%.
However, the three-month forward returns for benchmark indices have typically been around 7%, with a 78% probability of gains.
In conclusion, the positive U.S. labour market data and controlled inflation have renewed hopes of a soft landing for the U.S. economy, igniting a global stock market rally.
In India, benchmark indices like the Sensex and Nifty have surged to record highs, with domestic and foreign investors fuelling the bullish trend.
Analysts predict that the Fed's potential rate cuts and robust liquidity could continue to support the market's upward momentum in the coming months.
While volatility remains, the outlook for FPIs in India appears strong, suggesting that the country may benefit from an influx of foreign investments.
Disclaimer: This article provides stock market news solely for informational purposes. It should not be considered as investment advice. Please consult a qualified financial advisor before making any investment decisions.
