Growth worries to keep leash on Nifty50 as all eyes turn to RBI

Analysts say as concerns over India’s economic recovery rise in the wake of International Monetary Fund’s GDP growth downgrade and sluggish vaccination rollout, the index could continue to oscillate between 15,600 and 15,900 levels in the coming weeks.

Already high frequency data on the ground suggests the pace of recovery in the economy after the second wave of Covid has been not as fast as seen after the first wave last year. Nomura Securities India business resumption index actually fell in the week ending July 25 despite almost all states easing Covid-19 restrictions.

“We currently forecast a faster pace of vaccination starting in August, but the recent pace suggests risks are skewed towards a delay. With pandemic cases plateauing at an elevated level of 39,000 new cases a day , susceptibility to a third wave remains a key growth risk,” the brokerage firm said in a recent note.

It is concerns over slowing growth, China’s suppression of its technology sector and high inflation that saw foreign portfolio investors turn net sellers of Indian equities this week. The Nifty50 index declined 0.6 per cent this week, although it closed 0.3 per cent higher in July.

Among sectors, banks and consumer-facing companies took much of the selling as their fates are intertwined with that of the domestic economy. The Nifty Bank index fell 1.2 per cent, while the Nifty Consumption index declined 0.9 per cent. Both underperformed Nifty50.

On the other side, metal stocks enjoyed a breakout week as actions by the Chinese government to curtail export incentives and resumption of price hikes in the local market gave investors confidence that the rally in the sector still has legs. The Nifty Metal index rose nearly 8 per cent.

In the light of the whispers over wobbling domestic economic recovery, investors will turn towards the Reserve Bank of India next week for assurance that growth recovery is on track. While the central bank is not expected to cut interest rates, its language will broadly reflect the continuation of its accommodative stance vis-à-vis interest rate and liquidity and reinforcement of its commitment to growth even as inflationary winds bite consumers.

RBI too, just like the Fed, will not hamper the repo rates so as to continue supporting impacted sectors with cheaper credit. The Governor’s comments on inflation will also throw some light on the economy and any future action the central bank might take, said Nirali Shah, head of research at Samco Securities.

As for the trade set-up, Rahul Sharma, co-founder of Equity99, said Nifty50 will face resistance at 15,857 level next week but can go as high as 15,897 points. The 15,698-point level will act as crucial resistance.