Markets Surge Ahead: Reforms, Earnings, and Global Optimism Fuel the Rally
Performance recap
The Indian stock market has witnessed good rally in the month of October after witnessing volatility and consolidation in September month. The Oct month closed with a good gain of 4.5% with nifty closing at 25722 and Sensex closing at 83939. Trump tariff impacted the market sentiments earlier but with good deal of talks and negotiations at the backend the concern has eased off currently with further positive outcome expectations. The GST reforms earlier, global markets rally, Fed rate cuts, festive season, DII big inflows and good corporate earnings has turned the market sentiment positive. All major global markets including US markets continue to outperform Indian market during the month and overall for the year as well. US markets and most other market have been forming all time again in October month whereas Indian market still have to reach last year all time high. Overall FII sold for 2400 crores in Oct whereas DII bought for 52000 crores in same period. As highlighted in last month update that Indian market will perform well in coming months and trend remain same. However some macros like stretched valuation of major markets including US, US debt, AI companies valuation concern, global events and geo political risk remain key concerns.
Sectoral performance
Majority of the sectors witnessed good rally in line with nifty for the October month. Sectors which outperformed were realty 9%, PSU 8.5%, infra 6%, IT 6%, banks 5.5%, metals 5.5%. Sectors which underperformed the most in the month are auto 1%, FMCG 2.5% and pharma 3%. Midcap made a gain of 5% and smallcap gain of 4% during the month. Sectors performance varies over months following both trend and mean reversion principles i.e. IT outperformed after months of under-performance and auto underperformed after months of outperformance. It is also influenced by news, earnings, cyclical nature and policy impact; hence sectors rotation and rebalancing can be done to take advantage. Diversification across sectors adds stability and is also important from risk management perspective.
Global Market outlook including commodity
The Fed cut interest rates by another quarter percentage point at its October meeting. Investors had widely anticipated that the central bank would cut again this month despite the recent lack of official government data releases that the Fed usually relies on in making its decisions. The 25-basis-point reduction brought the central bank’s benchmark federal funds rate to a range of 3.75%–4.0%—its lowest in almost 3 years. The Fed always considers a broad range of data points in making its decisions. But official federal government data releases are the gold standard, the Fed has said. While the Fed had enough momentum for this rate cut, the lack of new data is making it harder to understand where policy may go next. The central bank also announced it is close to stopping its years-long process of shrinking its balance sheet, also called “quantitative tightening” (QT).
Despite the US government shutdown, market optimism remained elevated. US and global markets have rallied further making new lifetime high. However, there are still global uncertainties and risks like high government debt, unemployment, stretched valuations, lingering inflation, tariff trade war, geo political events. Hence, the volatility may continue despite resilience shown by the markets amidst valuation concerns. Gold & Silver have continue to perform exceedingly well concerning this challenges and continuing spectacular gains despite small corrections in between. Investors are seeking refuge in bullion due to economic uncertainties, bullish momentum and favourable fundamentals. Adding them in portfolio is part of diversification and risk management technique. Experts are divided in their opinion currently where some cautioning Investors of the stellar run up whereas some expecting the momentum to continue. Gold is currently trading at Rs 125k/ 10 gm and Silver at Rs 160k/ 1kg.
Outlook for the Indian Market
Indian market has underperformed in recent months and this has given fresh opportunity to new and existing Investors to add good quality stocks and mutual funds to the portfolio. This is validated by the record domestic inflows in the markets. Corrections, volatility, Consolidation and rally are part of the market cycle and Investors for long term need not worry much about it. Investors should stick to the discipline of regular systematic investing for long term. The outlook remains positive with volatility for near term. Global market, events and policies will further drive the market. Further, consult your investment advisor for prudent financial practices.
Fundamental outlook: Indian market has consolidated after corrections and seems to have resumed the uptrend recently heading towards all time high again. Favourable economic policies, GST reforms, inflows and good corporate earnings are driving the momentum again. Regular and Increase in numbers of mainboard and SME IPOs shows strength and stability in the market. Low VIX environment also indicates stability in the market. With good corporate earnings underway, market sentiment may improve further and market may try to reclaim lifetime high this year. However we need to track global market events and policies announcements.
Technical outlook: Indian market seems to have formed bottom around 24500 and have bounced few times from this level, now just 2% below all time high and is likely to surpass it in few weeks. Nifty is trading positive on technical parameters. Nifty is trading at monthly RSI of 66 and weekly RSI of 61 which indicates uptrend. Nifty immediate support is seen at 25250 and resistance at 26277.
