Dalal Street Action Next Week: From WPI Inflation Data To Cues From US Fed; Key Market Tiggers?

The Indian stock market resumed its bullish momentum last week, logging its best performance since the end of June. Investors were encouraged by positive global cues ahead of a much-anticipated interest rate cut by the US Federal Reserve. As the third week of September begins, market participants are bracing themselves for a slew of crucial triggers, including new listings, macroeconomic data, foreign fund flows, and commodity price movements. Domestically, eyes will also be on the wholesale price index (WPI) inflation numbers and other economic indicators, while international cues will largely depend on the US Fed's decisions and oil price fluctuations.

Last week, Indian equities rebounded after a brief one-week pause. Both the Nifty 50 and Sensex surged to fresh all-time highs, fuelled by a sharp rally on Thursday. The Nifty 50 hit a record 25,433.35 before closing the week at 25,356.50, reflecting a 2% increase from the previous week. The Sensex also soared, touching a peak of 83,116.19 before settling at 82,890.94, marking a 2.10% gain.

The broader indices joined the party as well, with the midcap index reaching new record highs. All sectors contributed to the rally, but FMCG, IT, and banking stocks led the charge, as hopes for a demand revival and volume growth buoyed consumer stocks. IT companies, with substantial US exposure, rose 2.8% on optimism surrounding the upcoming US Fed rate cut. The India VIX, which measures the market's expectation of volatility in the Nifty 50 index, fell significantly by 17.53%, closing at a 12.55 level.

Key Triggers for the Coming Week
Macroeconomic Data
This week, investors will closely monitor India's wholesale price index (WPI)-based inflation figures, which have been a key indicator of economic health. Additionally, trade balance data for August and the FX reserves figures will provide insights into the country's financial stability. Participants are also keeping an eye on bank loan growth, which could signal the strength of lending activity and credit demand in the economy.

India's retail inflation (CPI) in August stood at 3.65%, with prices for vegetables and pulses rising sharply. However, inflation remained below the Reserve Bank of India's (RBI) target of 4% for the second consecutive month. This moderation in inflation has raised expectations that the central bank will continue its accommodative stance.

US Federal Reserve's Interest Rate Decision
Global markets, including India, are eagerly awaiting the US Federal Reserve's interest rate decision, scheduled for September 18. Analysts expect the Federal Open Market Committee (FOMC) to announce a rate cut, initiating a cycle of monetary easing that could further boost market sentiment. A lower interest rate environment in the US is likely to spur more investment in emerging markets like India, as capital flows out of lower-yielding US assets.

While market participants initially believed the Fed would hold rates steady, the pessimistic tone in global markets and recent stock declines have strengthened the case for a rate cut. This week's FOMC meeting will likely set the tone for the rest of the year, especially in terms of foreign fund inflows and the performance of IT stocks reliant on US markets.

A Flurry of IPOs and Listings
This week promises to be a pivotal one for primary markets, with a slew of new initial public offerings (IPOs) and key listings. Seven new IPOs are set to hit D-Street, including Arkade Developers and Northern Arc Capital in the mainboard segment. Five new SME IPOs will also open for bidding, while ongoing IPOs, such as Western Carriers, are slated to close.

The buzz surrounding Bajaj Housing Finance's listing is especially noteworthy. The company's IPO, the hottest of 2024 so far, was oversubscribed by 64 times. Bajaj Housing Finance shares will debut on Monday, and market participants will be keen to see how they perform after such strong investor demand. Additionally, nine SME companies are set to be listed this week on the BSE or NSE SME exchanges, making this an action-packed week for IPO enthusiasts.

Foreign Fund Inflows
Foreign institutional investors (FIIs) continued to pump money into Indian equities last week, injecting Rs 15,199.60 crore into the cash segment. Domestic institutional investors (DIIs) were also net buyers, adding Rs 2,444.19 crore to their portfolios. As of September 13, foreign portfolio investors (FPIs) had invested Rs 53,007 crore across debt, hybrid, and equity markets, with Rs 27,856 crore allocated to Indian equities alone.

FII and FPI activity will be crucial for market direction this week, especially in light of global cues from the US Federal Reserve and domestic economic indicators. Robust foreign inflows have been a significant driver of the market's recent gains.

Global Cues
Global markets, particularly in the US, have been on a tear, with the Dow Jones Industrial Average (DJIA) and other US indices approaching record highs. Declining crude oil prices and a weakening dollar have supported this rally.

However, volatility could arise from Japan's inflation data, due on Friday, followed by the Bank of Japan's (BoJ) monetary policy announcement. Japan's ultra-low interest rates have long encouraged the "Yen carry trade," where investors borrow cheaply in Yen to invest in higher-yielding assets abroad. Any indication of monetary tightening by the BoJ could trigger an unwinding of these positions, injecting fresh volatility into global markets.

Crude Oil Prices
Global crude oil prices snapped their losing streak last week, buoyed by supply disruptions caused by Hurricane Francine in the US Gulf of Mexico. Brent crude settled at $71.61 per barrel on Friday, down slightly from earlier in the week but still marking a 0.8% gain. US West Texas Intermediate (WTI) crude also edged higher, closing at $68.65 per barrel.

The recovery in crude prices could add upward pressure on inflation in India, given the country's reliance on oil imports. However, the longer-term outlook for crude remains bearish, with prices still 16% lower for the quarter. This week's oil market activity will be closely watched, particularly for any further storm-related disruptions or geopolitical developments that could affect supply.

Overall, market experts remain cautiously optimistic about the week ahead. The Nifty 50 is expected to target 25,550, with sustained momentum potentially pushing it to 26,000. Banking stocks are likely to lead the charge, with experts advising traders to "buy on dips" while remaining selective in their stock picks.

With a packed week of macroeconomic data, IPO action, and key policy decisions, the Indian market is likely to remain volatile but skewed towards gains. Traders and investors alike will need to stay nimble, tracking global cues and adjusting their strategies accordingly.