D-Street extended bull run for third straight week amid concerns over elevated valuations. What lies ahead? 

The Indian equity benchmarks extended their bull run for the third straight week amid substantial rate cut by the US Fed and rally in metal stocks following China’s fresh stimulus measures.  

Besides, the Organisation for Economic Co-operation and Development (OECD) in its Interim Economic Outlook stated that Indian economy will likely log faster growth at 6.7 percent in FY25 compared with 6.6 percent projected earlier.  

S&P Global Ratings retained India’s growth forecast at 6.8 percent for current financial year. However, market watchers are concerned about its elevated valuations. 

The Sensex gained 1,028 points, or 1.2 percent, to 85,571.85 during the week ended on September 27, while Nifty jumped 388 points, or 1.5 percent, to 26,178.95.  

Sector-wise, the BSE Metal index was the top performers with a gain of 7.1 percent followed by BSE Oil & Gas index (up 5.9 percent) and BSE Auto index (up 4.3 percent). On the other hand, the BSE FMCG index declined by 0.2 percent during the week.   

As many as 42 stocks in the Nifty 50 index delivered positive returns for investors this week. With a weekly gain of 10.9 percent, Bharat Petroleum Corporation emerged as the top gainer in the index. It was followed by Tata Steel (up 9.6 percent), Mahindra & Mahindra (7.9 percent), Hindalco Industries (7.6 percent) and Maruti Suzuki India (7 percent). Bajaj Auto, Bharat Electronics, and Coal India also advanced by over 5 percent.  

On the other hand, ICICI Bank, Larsen & Toubro, and Kotak Mahindra Bank declined 2.4 percent, 2.3 percent and 1.7 percent, respectively. 

Market Macros  

Vinod Nair, Head of Research at Geojit Financial Services, said that Indian benchmarks experienced a 1.7 percent increase for the week, marking the third consecutive weekly gain. This upward trend was significantly influenced by last week’s substantial US rate cut. The market responded positively to the Fed’s rate cut and stable economic data points, which accelerated foreign inflows and generated momentum in domestic markets.  

Additionally, China’s economic stimulus announcement has bolstered investor confidence, resulting in notable positive momentum in global markets, particularly within Asian indices. 

He added, Metals and commodity-related stocks outperformed, while IT and export stocks rallied in anticipation of a recovery in discretionary spending, as indicated by signals from American IT peers.  

Softer commodity prices, including oil, are favourable for the domestic economy, and there is an expectation of a recovery in corporate earnings in H2FY25, driven by anticipated increases in government spending. 

A visible trend is that this rally was predominantly led by large-cap stocks, which are relatively fairly valued compared to mid and small caps, which are showing signs of exhaustion.  

“A risk to the rally is elevated valuations. Given the stimulus and attractive valuations like China, FII are inclined to eastern Asian peers. Looking ahead, investors will be focusing on the Q2 earnings, with an anticipation of an improvement in earnings outlook”, Nair said. 

Nifty Outlook 

Market veteran Deepak Jasani, Head of Retail Research at HDFC Securities says, Nifty snapped its six-session winning streak on September 27 after hitting its highest level of 26,277.35 points. At close, Nifty was down 0.14 percent or 37.1 points at 26,178.9.  

On the other hand, global equities tested new record high levels on September 27 as China’s latest stimulus measures to support economic growth and upbeat data from the US economy improved sentiments across financial markets. Optimism over central bank easing also helped. Asian markets ended mixed as they ran into weekend profit taking. 

Expecting some resistance for the large cap equity benchmark in the coming week he said, “Nifty stayed in a 126-point range on September 27 and formed a small negative candle. After a series of upticks, Nifty seems to have taken a breather. Nifty could now face resistance from the 26,250-26,475 band on the upside, while 25,849 could offer support in the near term.” 

Bank Nifty 

Amol Athawale, VP-Technical Research at Kotak Securities, said for Bank Nifty the medium-term texture is bullish but due to temporary overbought conditions, we could see range bound activity in the near future. “For traders now, 53,500 and 53,100 would be the key support zones while 54,500-54,800 could be the profit booking areas for the bulls. However, below 53,100 uptrend would be vulnerable,” Athawale said.