“The big money is not in the buying or selling, but in the waiting” – Charlie Munger
Nifty index started the September month on a positive note and after the initial dip in the first week, it witnessed a movement of more than 1500 points to touch a fresh all time high of 26277. It remained volatile in the last two weeks and lost all its gain of the previous month by correcting from 26277 to 24700. It witnessed volatile swings in last five weeks, as rallied by 1500 points followed by a sharp corrective move of more than 1600 points.
A sharp cut in key policy rates by Fed propelled Indian equity markets to new all-time highs, while sudden escalation in Israel-Iran war, China announcing stimulus packages, SEBI restrictions on F&O trading and Exit polls showing BJP losing Haryana led to sharp correction in markets.
Positives in September:
- Fed slashes interest rates by a half point, an aggressive start to its first easing campaign in four years.
- India’s Services Sector Reached a Five-month High, With PMI Rising To 60.9 In August, Up From 60.3 In July, Driven by Strong Domestic Demand.
- India Has Overtaken China in The MSCI AC World IMI Index with A 2.35 Per Cent Weighting Compared to A 2.24 Per Cent for The Latter.
- India’s Forex Reserves Hit All-time High Of $704.89 Billion, Up $12.5 Billion As of Sept 27.
Key reasons for heavy selling in markets:
- China’s central bank unveils most aggressive stimulus since pandemic. In September, China unveiled a monetary stimulus package including cuts to mortgage rates and the amount of reserves, one is required to keep on deposit with the central bank. Those and other measures were the most aggressive efforts so far to try to pull the property industry out of the doldrums and spur faster growth.
- Iran-Israel Conflict: War in gulf region escalated after Israel attacked Lebanon and killed Hezbollah chief with air strikes. It also started a ground invasion of Lebanon, expanding the war zone from Gaza to Lebanon. Iran in a surprise move launched ballistic missiles over Israel to avenge the killing of Hezbollah chief which triggered a panic selling in the market expecting an escalation of wider conflict in the region.
- SEBI announces new measures for F&O trading: In order to protect investors’ interest and cut down on speculative trading, capital market regulator Sebi came down heavily on the derivatives market by announcing a series of measures. The six-step framework is designed to tackle the surge in speculative trading volumes, especially on expiry days, while also acting as a potential deterrent for retail investors engaging in F&O trading.
- Valuations are at premium to historical averages: Since valuations of all 3 broader category indexes were trading at historical averages, correction was overdue. Above factors allowed markets to correct and bring valuations to a little cheaper level.
- Impact of State election results: Elections were due in states of Haryana & J&K. All exit polls predicted a loss of BJP due to anti-incumbency factor. This also led to selling in markets as a loss for BJP will be seen as a change in political trend – negative for markets. Surprisingly, BJP was able to retain power for a 3rd consecutive time in Haryana and markets took a breath of relief. Coming state elections in Maharashtra & Jharkhand will also be keenly watched.
Conclusion: All above factors are majorly external & geopolitical. India is still the best market in the world to invest in. Investors should treat this correction as an opportunity rather than sell off their portfolio.
The key factor in today’s Indian market is the dominance of Mutual Fund investments and its ability to cushion and support markets from the onslaught of FIIs selling. The month-on-month inflows from retail investors in mutual fund schemes has not stopped and continues to grow higher. Fund houses are sitting on ample cash to be pumped in such corrections.
Big Bang IPO lined up this month: Companies are rushing to go public in India this year as the stock market booms, with Hyundai Motor’s Indian unit gearing up to launch the country’s biggest initial public offering (IPO) of 2024. Hyundai Motor India, which will be India’s largest Initial Public Offering (IPO) till date, has fixed the price band for its public issue between ₹1,865 to ₹1,960 per equity share.
October outlook: Large, Mid & Small Cap Indexes have corrected in the range of 4-5% each. Large & Small Caps are in fair value zone while Mid-Caps are still trading in over-valued zone. Q2 earnings season will start and will play a major role in setting directions for the markets. We expect markets to be volatile in October and Nifty may trade in the range of 24000-26000 levels.