The Nifty 50 index rose for the second consecutive day after the Reserve Bank of India (RBI) delivered its interest rate decision. It soared to a high of ₹25,180 on Wednesday, a few points above this month’s low of ₹24,695.
RBI interest rate decision
The biggest catalyst for the Nifty 50 index and the BSE Sensex was the decision by the RBI to go against the grain.
It left interest rates unchanged at 6.50% for the tenth consecutive time. Before that, the bank hiked rates from 4.0% in 2022 in a bid to fight the elevated inflation rate.
Recently, however, the country’s inflation has continued falling, moving from 7.45% to 3.6%. The key challenge, however, is that food inflation has remained at an elevated level for a while.
On the positive side, there are signs that the RBI will start cutting interest rates in the coming meetings. In his statement, Governor Shaktikanta Das sounded optimistic that the country’s food and energy inflation will start moderating in the coming months. In a statement, a Standard Charted analyst said:
“The surprise decision to change the stance to neutral underlines growing confidence in achieving the inflation targets. It’s likely to raise expectations of rate cut in December though the headline CPI prints will remain the key determinant of the first rate cut timing.”
The RBI’s shift to a dovish tone happened as most central banks cut interest rates. In neighboring China, the central bank has brought rates to the highest level in years and implemented a series of measures to stimulate the economy.
In the United States, the Federal Reserve has slashed interest rates by 0.50%, and officials have hinted that more of these cuts were coming. The bank is expected to deliver 0.25% cuts in the next two meetings.
In Europe, the European Central Bank (ECB) has slashed rates by 0.50% this year as the economic weakness continues. European inflation has now moved to the 2% target and industrial and manufacturing production has moderated.
Other top central banks like those in Switzerland, the United Kingdom, and Indonesia have also slashed rates.
Therefore, the Nifty 50 index will likely benefit from low interest rates by pushing investors from bonds to equities.
Top Nifty 50 stocks in 2024
Most companies in the Nifty 50 and BSE Sensex indices have done well this year as many Indians have started to invest in the local market.
Mahindra & Mahindra, a leading company in the automotive and farm equipment industry, has been the best-performing company in the Nifty 50 index this year as it jumped by over 83%.
Other Indian automakers like Tata Motors and Maruti Suzuki have done well, soaring by more than 30% this year. This performance is mostly because of the strong order flow from Indian customers as the economy continues doing well.
Indian automakers have done better than their western peers like Stellantis, Ford Motor, and General Motors, which have all dropped this year. These western brands have struggled because of their flawed movement into electric vehicle industry.
Indian companies like Bajaj Auto, Eicher Motors, and Hero Motorcorp have also done well this year, rising by over 40%.
The other top companies in the Nifty 50 index in 2024 are Adani Ports, Shriram Finance, Sun Pharmaceuticals, Tech Mahindra, and SBI Life Insurance.
A key concern among invesrors is that the Nifty 50 index has become severely overvalued. For one, data shows that the Nifty 50 index has a price-to-earnings ratio of 23, higher than other global indices. For example, the S&P 500 index has a multiple of 21 while the German DAX has a multiple of 15.
Therefore, Nifty index constituents will need to continue reporting strong financial results to justify the hefty valuation.
The next key catalyst for the Nifty 50 index will be the upcoming US inflation and Federal Reserve minutes. These events will provide more color about the next action by the Fed.
Nifty 50 index analysis
Nifty index chart | Source: TradingView
The weekly chart shows that the Nifty 50 index has been in a strong bull run in the past few years. It has rallied from the 2020 low of ₹7,452 to a record high of ₹26,305, a 254% increase.
The index has remained above the 50-week and 100-week Exponential Moving Averages (EMA), meaning that bulls are in control.
However, there are some potential risks. For one, the Relative Strength Index (RSI) has moved from the overbought point of 77 to 61. The two lines of the MACD indicator have formed a bearish crossover pattern.
Also, the index has formed a rising broadening wedge, pointing to more downside in the coming weeks. If this happens, the next point to watch will be at ₹23,500. A move above the year-to-day high of ₹26,305 will invalidate the bearish view.
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