Equity benchmarks Sensex and Nifty traded down on April 12 morning after hotter-than-expected US inflation print firmed up bond yields and blazed hopes of a rate cut in June. Though this could have some impact on foreign flows, analysts remain bullish on the Indian market, which is being driven mainly by domestic liquidity.
The Sensex traded down 181.40 points or 0.24 percent at 74,856.75, and the Nifty shed 55.20 points or 0.24 percent to 22,698.60. The market breadth was in favor of gainers as 1,506 shares advanced, 1,046 declined, and 155 traded unchanged.
Any market dip will impart strength to the Indian market, believes VK Vijayakumar, chief investment strategist at Geojit Financial Services. "Investors may use this dip to buy high-quality large-caps, wherein the margin of safety is high," he said.
The 10-year US treasury yields were up by 1 basis point (bp) to 4.5 percent as traders parsed through hotter-than-expected inflation data, wherein the prospect of a June rate cut turned unlikely. The US consumer price index (CPI) rose 0.4 percent month-on-month (MoM) in March, maintaining the same pace as in February.
Further, core inflation too remained hot, rising 0.4 percent MoM and 3.8 percent YoY.
Experts believe that this has dashed hopes of a rate cut in June. "This year began with market expectation of six rate cuts. Now the expectation has come down to a maximum of three, perhaps two. Even now a total of 50 bp rate cut is possible this year and these will be backloaded," said Vijayakumar of Geojit Financial Services.
The minutes of the Federal Reserve meeting from March also showed that officials expressed concern over inflation not moving lower quickly enough. They said that they would not rush to cut rates until they 'gained greater confidence' that inflation was on a steady path back to the Fed's 2 percent inflation goal.
Having said that, Vaishali Parekh, Senior Vice-President of Technical Research at Prabhudas Lillahder remains optimistic of Nifty's positive trend and said that it will achieve the further target of 23,200 levels in the coming days.
Sensex, she added, would see some consolidation or profit-booking in the near term, but any dip would be a good buying opportunity. "The support for Sensex/Nifty during the day is seen at 74,500/22,600, while the resistance is projected at 75,500/22,900," Parekh added.
All sectors swung between gains and losses within the first hour of trade. India VIX, which measures near-term volatility spiked over 2 percent to 11.4.
Sector-wise, Nifty Metal and Nifty Pharma indices were the worst hit as investors booked profits across these counters. On the contrary, Nifty Realty and Nifty Auto indices saw some marginal move.
The star of the show turned out to be broader markets as they bucked the overall bearish trend and outperformed benchmarks. The BSE Smallcap and BSE Midcap rose to 0.1 percent on April 12 morning.
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