Stock markets in India will stabilise during the next week and will not see sharp downside from the current levels.
In fact, the key benchmark indices BSE Sensex and S&P CNX Nifty of the National Stock Exchange (NSE) may even witness a gap-up opening on Monday. Market analysts believe a rally of at least 100 points in Nifty is likely during the week if there are no negative surprises on the global front. Banking and metal stocks, which fell the most in the past couple of weeks, will be in focus.
This is after the sharp rise in US equity markets on Friday, following the speech of Federal Reserve Chairman Ben Bernanke at Jackson Hole, Wyo. Market participants, who were looking for a positive cue after the downgrade of the US credit rating by S&P’s on August 5 from AAA to AA- (negative), had been awaiting Bernanke’s address. Also, the news that renowned value investor Warran Buffet had lent $5 billion to Bank of America Merill Lynch has come as a respite for the market. Bank of America stock had declined over 50 per cent from its annual high on rumours about the bank’s poor balance-sheet.
Dow Jones Industrial Average and S&P 500, the key US equity benchmarks listed on the Chicago Mercantile Exchange, rose 1.2 per cent and 1.5 per cent, respectively, on August 26. This was after Bernanke said Fed had more tools to tackle economic slowdown and measures would be announced as soon as September.
Markets across the world were on a crash course after the S&P move, as there was a belief that US was slipping into recession and Fed had exhausted all its tools to stimulate the economy. Traders and economists had not only discounted a third round of quantitative easing by Fed, through which it lent huge money to banks, but feared that Bernanke would hint at something negative at the Jackson Hole.
The Indian markets have largely been affected by negative sentiment in the US since 2008, as large foreign institutional investors, mainly hedge and index funds that invest in India, have been lent by US banks.
On August 26, ahead of Bernanke’s speech, the Sensex fell 1.84 per cent or 297 points to close at 15,848. The Nifty fell 1.9 per cent or 91 points to close at 4,747. Both the indices are down over 15 per cent in August alone, as FIIs pulled out over $ 2.48 billion from equity markets in a single month. This is after they had pumped in over $1.8 billion in the market in the previous month. The Bank Nifty index and BSE Metal index, which fell over 15 per cent during the August derivative expiry series, will see turnaround.