Weak dollar, quick growth recovery to help stocks continue gains next week

MUMBAI: The swashbuckling rally in the Indian equity market is likely to continue next week aided by the weak trend in the US dollar and accelerating economic recovery at home, said analysts.

The US dollar has been on a downward slope ever since US Federal Reserve chief Jerome Powell’s speech at the Jackson Hole symposium last week, where he suggested that the central bank would start slowing down its asset purchase program from this year but will keep interest rates where they are until there is further recovery in the US economy.

The weakness in the US dollar is positive for Indian equities, as it helps bring foreign inflows as was witnessed throughout this week. Foreign investors were net buyers on all five sessions this week as their appetite for emerging market equities improved in light of receding concerns that the US Fed will tighten liquidity.

“Market participants are of the view that ongoing concern over rising delta variants may force major central banks to go slow on monetary tightening,” brokerage firm ICICIdirect said in a note.

This week, the benchmark indices jumped nearly 4 per cent to mark their best weekly performance since the announcement of the Union Budget on February 1. The gains in the market were largely driven by inflows from foreign portfolio investors as well as retail investors.

At the same time, optimism for the domestic economy is also strengthening in light of the strong uptick in high frequency data. India’s services sector PMI expanded in August after nearly four months of contraction as reopening of the economy helped businesses to restart, especially in contact-intensive sectors.

Further, the GDP print for June quarter, released earlier this week, showed an improvement in consumption and construction sector activities. Going ahead, investors are betting the sharp rise in pace of vaccination in the country could mitigate risks of any third wave that may occur later this year.

Investors are also betting on the festive season and normal monsoon to boost consumption activity in the economy in the coming months as consumers loosen their purse strings after missing out on festival expenditure last year due to the first wave.

“This certainly is strengthening the confidence of market participants which will fuel the rally going ahead. Going with the flow (with caution) seems to be the most logical choice of action in a market like this,” said Samco Securities in a note.

On the sectoral front, consumer-facing sectors like FMCG, retail and aviation are expected to do well as Indians venture out more amid relaxing of restrictions by most state governments. Largecap stocks, however, are expected to be the flag bearer going ahead with IT, energy and banking names dominating the gains, said analysts.

Technical analysts suggest that a broad bullish trend in the market will sustain next week, too, as the Nifty50 index managed to breakout on the weekly charts earlier this week.

“We expect Nifty to extend its move towards 17,500-17,700 zones while on the downside support is seen in the 17,200-17,050 range. Strong liquidity and positive global cues are vital to support domestic markets to continue their movements to record levels,” said Siddhartha Khemka, head of retail Research at Motilal Oswal Financial Services.

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