Stock Market: Fed action kicks in; sectoral tailwind plays out

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By Sangita Jha

New Delhi, May 3: It may not be entirely wrong to hypothesize that even stars align to help retracement following equity rallies. Nifty had gained over 325 points in a quick span of five days. Dow Jones had also a quick fire gain, which had taken the index past 34,000 level. But then the US Federal Reserve’s monthly meeting blipped on the radar to help the bears ride the slides to make some quick money.

Several regional banks in the US are failing the stress test. This has even led some to wonder if the Indian banking institutions will survive similar stress tests. What if there is a sudden development and the depositors rush to withdraw their money.

The lending by the Indian banking institutions are now at the aggressive best as was prevailing in December 2011 during the time when the dirty game of looting the banks was taking place. But currently Indian banks meet all the regulator norms, and the Reserve Bank of India is not at all worried of the US-like events unfolding in the country.

There is one disconnect and one parallel between the US and India. In printing currencies, the two countries struck contrasting stance. But in raising the interest rates both the countries had a mirror image.

The traders in the US are expecting the Fed to go with a 25 basis point hike. They will hope that afterwards Jerome Powell will then press the pause button. The quarterly GDP growth in the US has already hit the rock bottom of 1.1 per cent. In a nutshell, Power has singularly taken the US to the doorsteps of recession.

But even while Nifty is retracing from the high of 18167, a clear sector shift is blipping on the radar. The foreign institutional investors, sensing the end of the rate hike cycle in the US, is pumping dollars in the cash market in the Indian equity markets. On Wednesday, the FIIs again pumped in over 1300 crores. The FIIs are known to have deep pockets and sectors that they move in go trending to break all conventional level of resistance.

The investors are keeping a close watch on the FII action, because they are seen to have shown a clear change in preference, leaving IT sector to now pick up new areas and companies which are showing signs of massive scaling up of operations.