The equity market and government bonds are expected to open on a positive note on Monday, tracking the fall in US Treasury yields after Federal Reserve chair Jerome Powell indicated that the time has come to cut interest rates.
The rupee is also expected to open stronger against the dollar on Monday, dealers said.
The yield on the benchmark 10-year US Treasury bond fell by 7 basis points to 3.79 per cent following Powell’s remarks. It was trading at 3.86 per cent on Friday at the close of Indian money markets.
Powell didn’t specify how much the Fed might cut its key rate, but most analysts predict a 25-basis-point reduction in September. “The time has come for policy to adjust,” said Powell on Friday at the Fed’s annual retreat in Jackson Hole, Wyoming. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”
Experts say that while equity markets have fully priced in a 25-basis-point rate cut in September by the Fed, they could still gain between 0.5 per cent and 1 per cent given the sentiment boost from the Fed chief’s clear indication of the start of the rate cut cycle. The US markets closed over 1 per cent higher on Friday, buoyed by the Fed chief’s comments.
The yield on the benchmark 10-year government bond is expected to open around 4 basis points lower on Monday. It had settled at 6.86 per cent on Friday.
“The market will open on a positive note; we might see the yield fall by 3-4 basis points,” said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP. “We’ll also have to see when the Reserve Bank of India initiates rate cuts; until we get that clarity, the yields might reverse,” he added.
In the current financial year, the benchmark yield fell by 19 basis points, whereas, in the current calendar year, the yield rose by 31 basis points. In August so far, the yield has softened by 6 basis points.
The benchmark Nifty and Sensex have rallied over 3.5 per cent from this month’s lows, amid a rebound in other global markets as fears of a US recession—triggered by US unemployment data at the start of the month—have receded.
The Sensex and the Nifty on Friday closed at 81,086 and 24,823, respectively. Both indices are currently below their record highs of 82,129 and 25,031, hit on 1 August.
“Market participants will respond positively to the dovish remarks by the US Fed Chair. Additionally, a weakening dollar and falling crude oil prices are positive for our markets. Domestically, investors will also keep an eye on economic data releases, including GDP figures and infrastructure output,” said Ajit Mishra, SVP, Research, Religare Broking.
On the other hand, foreign exchange traders expect the rupee to open around 83.85 against the dollar. It had settled at 83.90 per dollar on Friday.
“The rupee should open around 83.85 per dollar, but it also depends on intervention by the RBI,” said Amit Pabari, managing director at CR Forex. “The rupee has been the worst-performing Asian currency so far; we’ll have to see on Monday morning whether the RBI intervenes. If they do, then the rupee will continue within the current range,” he added.
In the current financial year, the rupee has depreciated by 0.6 per cent, whereas in the current calendar year it has depreciated by 0.8 per cent. In August so far, the local currency has depreciated by 0.2 per cent.
First Published: Aug 25 2024 | 7:17 PM IST