(Photo : NSE)

• Indian shares rose on August 20, 2024, led by financials and IT stocks, due to expectations of a US rate cut.
• The NSE Nifty 50 index and the S&P BSE Sensex both saw gains, reflecting positive sentiment across global markets.
• IndusInd Bank and IT companies hit record highs, while investors await clues on the US rate cut trajectory.
• Despite a recent drop, the outlook for Indian equities remains positive, with opportunities for portfolio rebalancing and entry points.

Indian shares closed higher on Tuesday, August 20, 2024, led by financials and information technology stocks. The rise was spurred by rising expectations of an aggressive rate cut by the U.S. Federal Reserve in September, which boosted sentiment and spurred a global equities rally. The NSE Nifty 50 index rose 0.51% to 24,698.85, and the S&P BSE Sensex settled 0.47% higher at 80,802.86. Other Asian markets also logged gains, with the MSCI ex-Japan gaining 0.3%, while most European markets opened higher.

The positive sentiment was reflected across all regions, Europe and Asia, following last week's positive macro releases from the U.S. This resulted in a sharp turnaround in sentiment, as stated by analysts led by Chris Montagu of Citi Research. Eleven of the 13 major sectors logged gains. The broader, more domestically focused small- and mid-caps rose about 0.5% and 0.8%, respectively.

The financial services sector, which includes banks and private banks, added between 0.8% and 1.2%. IndusInd Bank gained 2.5% after receiving central bank approval to set up a wholly-owned asset management business of mutual funds. IT companies, which earn a significant share of their revenue from the U.S., rose 0.81% and hit a record high.

Key Market Movements and Expectations

Investors are now awaiting the minutes of the latest Fed policy meeting and Fed Chair Powell's address due later in the week, for clues into the U.S. rate cut trajectory. Despite a 1.5% drop from record high levels hit on August 1, the outlook remains positive for Indian equities, according to Sonam Srivastava, founder and fund manager at Wright Research. The time correction in the first half of August has provided an opportunity for investors to rebalance portfolios and identify potential entry points, Srivastava added.

In the meantime, Polycab India and KEI Industries gained 2.56% and 7.62%, respectively, after UBS initiated coverage on the stocks with a buy rating, terming them leading beneficiaries of long-term electrification growth. However, Mazagon Dock tumbled 9%, taking its losses in three sessions to 14%, after ICICI Securities termed it overvalued and estimated a 77% downside over 12 months.

The rise in Indian shares was also influenced by the global equities rally, led by financials and information technology stocks, as rising expectations of an aggressive rate cut by the US Federal Reserve in September boosted investor sentiments. The BSE benchmark Sensex advanced 378 points or 0.47% to settle at 80,803, while the NSE Nifty gained 126 points or 0.51% to end at 24,699. Meanwhile, the market capitalisation of all listed companies on the BSE surged by Rs 2.27 lakh crore to Rs 456.66 lakh crore.

Historical Similarities and Market Outlook

The rise in Indian shares on August 20, 2024, is reminiscent of similar historical events. For instance, in February 2019, Indian shares rose sharply after the U.S. Federal Reserve signaled a pause in its interest rate hikes, boosting investor sentiment globally. Similarly, in August 2020, Indian shares surged after the U.S. Federal Reserve announced a new strategy to allow inflation to run above its 2% target to ensure a robust economic recovery, sparking a global equities rally.

From the Sensex pack, Bajaj Finserv, Kotak Bank, and Axis Bank led the gains, rising between 1% and 3%. Conversely, Bharti Airtel, Adani Ports, and JSW Steel ended the day in the red. Sector-wise, Nifty Financial surged over 1%, driven by SBI Life, ICICI Prudential Life, and HDFC Life. Nifty Auto, IT, Pharma, Realty, Healthcare, and Oil & Gas sectors also closed higher.

In conclusion, the rise in Indian shares on August 20, 2024, was driven by rising expectations of an aggressive rate cut by the U.S. Federal Reserve in September, which boosted investor sentiment and spurred a global equities rally. The financial services and IT sectors led the gains, with IndusInd Bank and IT companies hitting record highs. Despite a recent drop from record high levels, the outlook for Indian equities remains positive, with the time correction providing an opportunity for investors to rebalance portfolios and identify potential entry points. The market's performance on this day serves as a testament to the interconnectedness of global financial markets and the influence of major central banks' policies on global investor sentiment.