Rate-Cut Optimism Boosts Indian Stocks, Lifts Realty and Metal Shares

As investor confidence increased in the wake of anticipation of a U.S. Federal Reserve interest rate decrease, India's equity markets began to show signs of recovery. The auto, midcap, metal, and real estate sectors all saw increases as a result of the newfound confidence brought on by Fed Chair Jerome Powell's dovish remarks.

India Markets Edge Higher amid Rising Fed Rate-Cut Signals

Markets in India advanced for the second week in succession, with autos and midcap segments leading the charge despite continued Foreign Institutional Investor (FII) selling. The Nifty benchmark posted a 0.5% gain over the fortnight, while financials, telecom, and realty stocks rallied by more than 3% each.

The renewed confidence follows Powell’s Jackson Hole commentary, which hinted at a policy shift and raised the probability of a September rate cut to 90% from 75%. This took off pressure on elevated U.S. tariffs and dampened concerns over rising trade barriers.

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FII Activities

The FIIs have maintained their streak of selling, offloading shares worth ₹1,559.51 crore for the eighth week in constantly, which increased their total sales for the month to an impressive ₹25,751.02 crore.

Sector Rotation

• Losing Strength and Momentum: Indices such as Nifty PSE, Nifty Oil & Gas, Nifty Bank, Nifty Financial Services, and Nifty Private Bank have experienced a notable decline in both momentum and relative strength. In particular, Nifty Private Bank is on the verge of slipping into the lagging quadrant. Additionally, Nifty Energy and Nifty Realty, which were previously in the improving quadrant, have now shifted to the weakening quadrant, showing a significant loss in momentum and strength.
• Under Pressure: Declining Indices: Currently, no indices are positioned in this quadrant.
• Improving Quadrant: Nifty Consumer Durables and Nifty FMCG are gaining traction with rising momentum and relative strength. However, Nifty Pharma has shown a decline in momentum this week and should be closely watched. If this trend continues, it may start to significantly underperform the broader Nifty index.
• Shifting Towards Underperformance: Nifty MNC and Nifty Auto have shown a strong uptick in both momentum and relative strength, which is a positive indicator. On the other hand, indices like Nifty Metal, Nifty Infrastructure, Nifty Media, and Nifty PSU Bank are starting to lose momentum and relative strength, signalling potential weakness ahead.

Realty and Metal Stocks See Sharp Gains

On August 25, real estate and metal stocks outperformed broader markets. The Nifty Realty index rose nearly 1% to around 919, while the Nifty Metal index climbed around 1% to 9,451.10, reversing a two-day downtrend.

Stocks like Jindal Stainless Steel rallied nearly 3.5%, with others including Hindalco, NALCO, NMDC, and Vedanta posting rises ranging from 1% to 2%. Among realty stocks, Brigade Enterprises, Godrej Properties, DLF, and Oberoi Realty saw modest gains.

Market Outlook

• Sentiment Boosted by Rate-Cut Hope: Markets have responded favourably to Powell’s remarks, driving gains in rate-sensitive sectors like real estate and metals.
• Domestic Resilience Amid FII Selling: Domestic investors continue to support valuations even as foreign exits persist.
• Challenges Remain: The market retains a cautious tone, with downside risks from global trade tensions and domestic policy uncertainties.

Conclusion

If global rate-cut forecasts come to pass, Indian markets may continue their upward trajectory, as seen by strong signals of increased investor interest. Resilient domestic support and sector-specific rallies might maintain momentum in the near term even while FII withdrawals continue. Market players will be keenly observing the Fed's signals and domestic actions that are intended to maintain growth.

Looking ahead, markets are likely to remain volatile, awaiting the Fed’s next rate decision in September. Analysts expect realty and metal stocks to continue outperforming if interest rate cuts materialise, while IT and pharma sectors could face pressure from global trade and regulatory developments.