Powell’s taper not tightening, message to lift stocks next week, say analysts

MUMBAI: And breathe. The much-awaited event of the month did not disappoint investors, as US Federal Reserve Chief Jerome Powell delivered a largely benign speech at the Jackson Hole Symposium on Friday from the perspective of equity markets.

While Powell said he would like the central bank to start reducing its $120 billion-a-month asset purchases from this year, as per expectations, he was quick to add that investors should not read it as a signal to an imminent hike in interest rates.

“The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff, for which we have articulated a different and substantially more stringent test,” Powell said in his speech.

During the Fed chief’s speech both the S&P500 and NASDAQ index hit their lifetime highs, indicating that investors were largely happy with what they heard. Analysts believe the reaction of the US market bodes well for Indian equities next week.

The September futures of the Nifty50 index traded on the Singapore Exchange were up over 1 per cent at 16,818 points.

Despite the uncertainty of the Powell’s speech, Indian equities had a solid week with a broadbased rally across segments. The Nifty50 index ended in the green with a gain of 1.5 per cent for the week and perched at record high.

In the broader market, where recent weeks have seen a sea of red, it was a grassland of green as the Nifty Midcap 100 and Nifty Smallcap 100 index rose 2 per cent each.

As investors’ risk appetite returned, so did the their preference for high beta stocks as witnessed in the 2-3 per cent gains for Nifty Energy, Nifty Metal, Nifty PSE and Nifty Financial Services indices during the week gone by.

While investors will still have some time adjusting to the absence of more liquidity in the coming months as the Fed reduces asset purchases, Powell’s comment that the central bank will continue to retain its high ownership of bonds should comfort investors over accommodative financial conditions.

“We believe largecaps offer better margin of safety in the current environment and could continue to remain in focus in the near term,” said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services.

“From a long-term perspective, the overall trend of the market remains positive led by the opening up of the economy, improving economic data points and pickup in vaccinations.”

On the technical front, analysts noticed some indecisiveness in the market, but suggested that long-term positive momentum may continue.

“A mild dip towards short-term averages can be expected but the major bullish trend will be intact as long as Nifty trades above 16,250 point. Any break below 16,360 support level will signal weakness in the short term,” said brokerage firm Samco Securities.

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