The Nifty 50 index has pulled back in the past few weeks as concerns about Donald Trump’s reciprocal tariffs and Indian stocks valuation. The index, which tracks the biggest firms in India, has retreated to ₹22,550, down by 14.3% from its highest level this year. So, is it safe to buy the Nifty 50 index dip ahead of th RBI decision?
India tariff concerns remain
The Nifty 50 index has come under pressure in the past few months. One of the top concerns is that Donald Trump may decide to implement substantial tariffs on Indian goods, a move that may affect some of the top constituent companies.
Trump aims to achieve that goal by implementing reciprocal tariffs, where it will charge similar tariffs to those that India charges it. This is a notable thing for India since it has one of the biggest tariffs globally.
India has started to appease Donald Trump. Narendra Modi was one of the first global leaders to visit Washington. He also praised Trump in various social media posts, something that Trump has noted.
At the same time, India has vowed to buy more US goods, especially in the defense industry in a bid to close the deficit. India has also identified 30 products that it will slash tariffs. Still, it is unlikely that these efforts will be enough.
RBI interest rate decision
The next key catalyst for the Nifty 50 index will be the upcoming Reserve Bank of India interest rate decision scheduled for later this week.
Analysts expect that the bank will decide to slash interest rates by another 0.25% in anticipation of the upcoming tariffs by the US government.
The bank is also motivated by the fact that inflation has continued falling in the past few months. Data by the statistics agency showed that the headline Consumer Price Index (CPI) dropped to 4.31% in January, down from over 6.1% in 2024. That is a sign that inflation is moving in the right direction.
The Nifty 50 index is usually affected by the actions by the Reserve Bank of India. It typically does well when the bank is cutting interest rates as this usually leads to a rotation from the low-yielding vonds to equities.
Indian bond yields have crashed in the past few months. The ten-year bond yield dropped to 6.90%, its lowest level since February 2022. Similarly, the 30-year yield has moved to 7.10%, down from the 2022 high of 7.92%.
Most Nifty 50 index stocks have been in the red this year. The best-performing ones are firms like Bajaj Finance, Bajaj Finserv, Hindalco Industries, JSW Steel, Tata Steel, Shiram Finance, and Kotak Mahindra Bank. All these firms have jumped by over 10% this year.
The most notable gainers in the market this year are Maruti Suzuki, Eicher Motors, Tata Consumer Products, and Nestle India.
On the other hand, the top laggards in the Nifty 50 index are companies like Trent, Dr. Reddy’s Laboratories, HCL Technologies. Apollo Hospitals, and Bajaj Auto.
Read more: Trent shares are down 22% in Jan after a strong 2024: what analysts want you to do
Nifty 50 index analysis
Nifty 50 index chart by TradingView
The weekly chart shows that the Nifty 50 index peaked at 26,280 rupees in December last year, and has now pulled back to 22,580. It has crashed below the ascending trendline that connects the lowest swings since March 20th last year. The index has also moved below the 25-week and 50-week moving averages.
On the positive side, the Nifty 50 index has formed a falling wedge pattern, pointing to an eventual rebound. This rebound may see it retest last year’s high of 26,280 rupees, which is about 16% above the current level.
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