Market Ahead Podcast, Aug 31: Top factors that could guide markets today

Flagship indices flirted with fresh milestones on Monday as riskier asset classes cheered US Fed chairman Jerome Powell's dovish statement at the Jackson Hole Symposium last Friday.

The frontline S&P BSE Sensex inched closer to the 57,000-mark as it hit a fresh record peak of 56,958 in the intra-day deals while the Nifty50 missed the 17,000-mark by just 48 points as it touched 16,952 levels.

Overall, the Sensex index closed at 56,890 and the Nifty50 index ended at 16,931 levels, up 765 points and 226 points, respectively. This was the indices' best single-day gain since August 3, 2021.

Meanwhile, in the broader markets, the BSE MidCap and SmallCap indices ended 1.7 per cent and 1.5 per cent higher, respectively, amid a broad-based buying.

Now, Indian stocks will hold, and possibly extend yesterday's gains, if the April-June quarter GDP data, slated to be announced later today, positively surprises the Street.

For now, markets are baking in a 18-23 per cent year-on-year rise in the Q1FY22 GDP print on the back of a low base and recovery in economic activities towards the end of the quarter. Any disappointment here could result in a pullback.

That apart, stock-specific news flow, foreign fund flow, and the dollar index's movement will guide the markets trajectory.

Investor wealth soared by Rs 3.6 trillion on Dalal Street on Monday after US Federal Reserve chairman Jerome Powell explained why there is no rush to tighten monetary policy, and offered no definite timeline on when the central bank plans to cut its asset purchases beyond this year.

Over the past few weeks, discussion on the start of tapering by the Fed had markets worried about a repeat of the 2013 "taper tantrum" meltdown.

As the recent Fed minutes had raised concerns of an earlier start to tapering, sour memories of the 2013 episode made investors shun equities to avoid a sharp pullback seen across asset markets back then.

Similar to trends seen in 2013, growth proxies like the EM equity index, copper and the commodity index had fallen by 4-6 per cent last week, while FMCG and IT were outperformers.

In 2013 as well, US markets/EMs/copper/commodity index had fallen by 5%/13%/8%/3% in a month.

However, analysts at global brokerage CLSA are of the view that a similar reaction by equities is unlikely this time as key economic parameters such as unemployment, US GDP growth, and inflation are better than long-term targets.

Back in 2013, the announcement of the taper tantrum programme had eroded 7.5 per cent on the Nifty50 in a month. This was also driven by a massive depreciation in emerging markets' currencies with the Indian rupee declining by over 7 per cent in a month.

However, this time around, CLSA believes the Indian economy is on far stronger footing now.

A massive rise in India's forex reserves, a much-less alarming CPI inflation rate, a more robust GDP growth outlook, and possibly a more vigilant RBI currency policy are some noteworthy differences.

Against this backdrop, CLSA believes the reflation trade may be back in the markets soon with growth sectors like financials and commodities gaining traction.