Markets likely to get negative start amid surge in oil prices, jump in U.S. Treasury yields

Indian markets settled in the choppy trading session in red for the third consecutive session on Tuesday due to increased volatility ahead of the election results. Today, markets are likely to make negative start tracking weakness in Asian counterparts coupled with surge in oil prices overnight and a jump in U.S. Treasury yields to multi-week highs. Market participants likely to remain on sidelines ahead of the Lok Sabha exit poll results will be announced post the completion of all seven phases on June 01.  The actual results will be announced on June 4th. Based on several opinion polls, the NDA political alliance is expected to secure a third term in office, with a high probability of the BJP maintaining its single-party majority. However, some respite may come later in the day amid foreign fund inflows. Foreign institutional investors remained net buyers on May 28 as they bought Indian equities worth Rs 65.57 crore. Traders may take note of report that India and the UK have discussed critical issues pertaining to the mobility of healthcare professionals to the UK on the sidelines of the 77th World Health Assembly of WHO in Geneva. India also emphasised the need to take bilateral cooperation further in the pharmaceutical sector to overcome challenges faced by the Indian pharma industry in meeting multiple regulatory systems covering the EU and the UK. Sugar stocks will be in focus with report that India may allow sugar exports after assessing the final sugarcane sowing and output in the 2024-25 season, as the world's biggest producer after Brazil is expecting a lower sugar output of 30 million tonnes next season. For the current 2023-24 season ending September, sugar production has reached 31.5 million tonnes so far, with the final output likely to touch 31.8 million tonnes as mills in Tamil Nadu and Karnataka wrap up crushing. There will be some reaction in stocks related to electronics items with a private report that domestic consumption of electronics items is estimated to have grown 13-15 per cent to Rs 14-15 trillion in the financial year ended March 31, 2024 (FY24), with mobile phones and consumer and industrial electronics accounting for 50-55 per cent of the pie. Various factors contributed to the growth, such as increasing penetration of internet and 5G services, rising consumer income, shorter replacement cycles, easier payment terms, and developments in the auto, electric vehicle, and power segments.

The US markets ended mostly in green on Tuesday as Nasdaq crossed 17,000 for the first time ever, boosted by gains in Nvidia, while the Dow settled in red as Treasury yields rose. Asian markets are trading mostly in red on Wednesday weighed by persistent concerns that sticky inflation will push major central banks into keeping interest rates high for longer.

Back home, Indian equity benchmarks gave up initial gains and ended in negative territory in the volatile session on Tuesday as traders remained on sidelines ahead of upcoming exit poll results, India’s gross domestic product (GDP) data for Q4FY24 and May F&O expiry. Markets made an optimistic start and managed to keep their heads above water in morning deals, as traders took some support with the India Meteorological Department (IMD) stating that India is likely to receive above average monsoon rains this year, retaining its April forecast. Above average rains will help India, which depends heavily on the summer rains for its farm output, boost agriculture and overall economic growth. Some support also came as a global financial institution revised its GDP forecast for India by 10 basis points to 6.7 percent expecting a sustained growth momentum with additional fiscal space on account of a bumper dividend transfer from the central bank. It also expects the Reserve Bank of India to go for a rate cut in the October-December quarter as it forecast an uptick in core goods inflation due to a rise in manufacturing costs. Additional support also came as S&P Global Market Intelligence stated that the Indian government's capital spending, recovery in private consumption and investment are expected to help carry forward the economic momentum post-elections. However, in second half of the trading session, markets oscillated between gains and losses and finally settled in red amid foreign fund outflows. In the domestic market, foreign institutional investors (FIIs) offloaded shares worth Rs 541.22 crore on Monday. Sentiments remained weak amid a private report stating that India's economy likely grew at its slowest pace in a year in the January-March quarter due to weak demand. Some cautiousness also came with domestic rating agency Crisil stating that the banking system's credit growth will drop by 2 percentage points to 14 per cent in financial year 2024-25. The slowdown will be due to lower GDP growth at 6.8 per cent in FY25, as against 7.6 per cent in FY24, RBI measures like higher risk weights on unsecured loans and a high base. Finally, the BSE Sensex fell 220.05 points or 0.29% to 75,170.45, and the CNX Nifty was down by 44.30 points or 0.19% points to 22,888.15.