Traders may buy dip at lower opening
Source: Live Mint
Stock markets could open gap down on Monday in response to the lower-than-expected gross domestic product (GDP) reading for the second quarter , but the dip could be purchased as the growth slowdown is likely to be seen as a one-off and spur dovish commentary on rates from Reserve Bank of India (RBI), according to market analysts.
They added that investors will closely dice the RBI commentary for cues on its growth projection for FY25 and rate cuts later this week , after its Monetary Policy Committee meets for penultimate time (December 4-6) this fiscal amid the growth slowdown. RBI has thus far avoided giving any policy rate guidance. The repo rate of 6.5% has been unchanged since February 2023.
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National Statistics Office (NSO) , after market hours on Friday, estimated real GDP growth in Q2FY25 at 5.4%, the lowest in seven quarters , and way below RBI’s own expectation of 7% growth for Q2 at the last MPC meeting on 9 October . This drove economists from Goldman Sachs to lower their full year (FY25) growth estimate to 6% from 6.4% earlier, per Bloomberg.
“There could be a knee-jerk reaction to the lower than expected GDP print when markets open Monday, but since a slowdown was priced in and a policy meeting due this week, investors might buy any dip on expectations that the RBI panel might turn dovish sooner than expected,” said UR Bhat , co-founder of Alphaniti Fintech.
RBI refrained from cutting rates in October after the US Fed cut its federal funds rate by an outsized 50 basis points, the first in four years, to a 4.75-5% range on 18 September, citing price inflation risks. However, with Q2 growth coming in well below its estimates analysts like Bhat expect some growth -inflation trade off by the central bank.
Bhat also cited the positive Gift Nifty closing post the GDP release to support his claim that a likely cut would be bought into . The NSO data was out by 4 pm IST Friday , half an hour after the NSE and BSE closed.
The Gift Nifty active futures contract closed up two-fifths of a percent at 24395 as of early Saturday morning. The Nifty closed at 24131.10 on Friday. This implies a 264 point premium but that was because of the positive cues offered by Nifty which itself rose by 0.9% on Friday. The Gift Nifty trades for longer hours than Nifty with the normal market running 6:30 am to 2:50 am of the next day with a 55 minute gap.
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“We could see pressure at opening but I think the dip could be bought , given increased expectations of RBI looking at a rate cut more favourably than before this meeting,” said Rajesh Palviya, head of technicals and derivatives research at Axis Securities.
Along with growth slowdown prompting more proactivity by RBI, increased government spending is likely to improve earnings prospects in the second half.
Central capital expenditure or capex declined by 35% year on year in the first quarter of the current fiscal but partially recovered with a 10.26% growth in the second quarter . This is expected to improve further in H2FY25, notes Prabhudas Lilladher in its India Strategy report released last week. It adds though that achieving the full year capex estimate of ₹9.2 trillion (ex loans and advances) is a “daunting task.”
The first half capex was impacted by election disruption and uneven rainfall across parts of the country in H1. The H1 capex was ₹4.15 trillion , down from ₹4.9 trillion a year ago.
“The GDP print was a disappointment on account of lower government spends amid centre and state elections , uneven monsoon and labour shortages in the first half,” said Nilesh Shah, MD & CEO, Kotak Mahindra AMC . “These problems will be behind us in H2 and may boost corporate earnings which were tepid in H1.”
Bhat of Alphaniti and Axis Securities’ Palviya believe that Nifty will consolidate in a 23900-24400 range in the near term.
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The Nifty dipped 11.5% from a record high of 26277.35 on 27 September to a low of 23263.15 led by relentless FPI selling of $13.8 billion in October -November. Though this was absorbed by domestic institutional investors (DII), the issuance of IPOs and QIPs meant supply exceeded demand and amid FII selling dragged down the market.
