Indian stocks recovered after four sessions of decline, driven by improved global cues, softer US rate hike expectations, and proposed regulatory tweaks to derivatives trading in India, though uncertainties remain due to oil prices and US economic data.
Indian equities found buyers again on Friday 4 September after four straight losing sessions, as traders pared back expectations of a US interest-rate rise this month and drew encouragement from firmer markets overseas. Reuters reported that by 10:02 a.m. IST the Nifty 50 had climbed 0.35% to 23,957.80 and the Sensex was up 0.75% at 76,730.4, undoing some of the damage from an uneasy run in which higher oil prices and rising bond yields had darkened sentiment.
The early rebound was broad enough to lift nine of the market’s 16 main sectors, with information-technology shares gaining about 0.6% as investors warmed to a softer rates outlook in the United States. Small-caps added 0.5% and mid-caps 0.1%. Rajesh Palviya, head of research at Axis Direct, told Reuters: “Global cues have turned supportive after softer Treasury yields and dovish Fed commentary raised hopes that further rate hikes may not be warranted if inflation continues to ease.”
Those hopes were set off by Christopher Waller, a governor at the Federal Reserve, who said he would be inclined to support leaving rates unchanged at the central bank’s 15-16 September meeting if incoming inflation data showed further progress. Speaking at a Reuters NEXT Newsmaker event in Washington, Waller said that “if there is continued progress toward our 2% goal, then I am willing to support holding the policy rate at its current level.” He added, “I’m going to paraphrase John Lennon here. Give disinflation a chance”. Reuters said the Fed’s benchmark overnight rate has been in a 3.50%-3.75% range since December, and that the August CPI report due next week would be the last major inflation reading before the meeting.
Wall Street promptly took the remarks as a sign that a September increase was no longer the base case. Reuters reported that financial markets cut the implied probability of a hike to about 50.4% from 63.2% a day earlier, while the main US stock indices all rose at least 1% on Thursday. Even so, investors were not ready to declare the danger over. Brent crude was up another 0.49%, marking a fourth straight daily rise, and Jeff DerGurahian, chief investment officer at loanDepot, warned Reuters that “Even if domestic inflation data improves, a sustained rise in oil prices could keep inflation concerns alive and make it harder for the Fed to remain on the sidelines.”
In Mumbai, one of the clearest beneficiaries was the cluster of brokerages and market-infrastructure companies exposed to derivatives trading. Reuters said BSE jumped 4.5%, Angel One gained 5.4% and Groww rose 2.5%, while Nuvama Wealth and Motilal Oswal each added 1.2%, after the Securities and Exchange Board of India signalled changes to the way derivatives settlement prices are determined. Business Standard reported that Sebi plans to issue a consultation paper within about a week after complaints that the recently introduced closing auction session had produced sharp price spikes and distortions, particularly on expiry days.
The mechanics of that review matter because the closing price generated through the closing auction now feeds directly into derivatives settlement on expiry. Business Standard said the 20-minute closing auction session was introduced on 3 August, and that exchanges have already altered some rules so that the volume weighted average price of trades between 3:00 p.m. and 3:15 p.m. can be used as the reference price for stock and index futures. If no trade is executed in that period, the last traded price for the day will be used. The paper also highlighted a 0.31 percentage-point divergence between the Sensex and the Nifty on one recent expiry day, helping explain why the regulator moved quickly.
That backdrop also casts Thursday’s strange finish in a harsher light. Reuters said the Sensex had dropped as much as 2.5% during the closing auction before finishing down 0.55%, a far steeper fall than the Nifty’s 0.17% decline. Friday’s rise therefore reflected more than a passing improvement in mood abroad: it was also a local market trying to stabilise after a trading mechanism that many participants believed had amplified end-of-day swings.
The dependence on outside cues is not new. In a Reuters report carried by ThePrint on 5 September 2024, Indian benchmark indices ended marginally lower as investors waited for US jobless claims and the following day’s non-farm payrolls report for a clearer read on the American economy. Even in that nervous session there were stock-specific bursts of optimism, with Zomato climbing 4.9% after JPMorgan lifted its target price, citing support from Blinkit. A separate PTI report carried by Rediff the same day showed how domestic supports can coexist with that caution: foreign institutional investors had bought Rs 975.46 crore of equities the previous session, India’s services activity had reached a five-month high in August, and the Nifty had only just broken a 14-day winning streak in which it had risen nearly 1,141 points.
Friday’s rebound, then, looked less like a clean turn in trend than a reprieve granted by one Fed speech and a promise of regulatory fine-tuning at home. Waller himself made clear the pause case was conditional, saying he would still consider a rate increase “If inflation comes in hot”. With oil still elevated, US data still capable of shifting the rates debate and Sebi still drafting its consultation paper, the calm that returned to Indian equities by the end of the week remained provisional rather than assured.
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