Indian markets surging to all time highs today: What's happening post Fed decision?
Sep 24, 2024, 11:18 IST
The BSE Sensex climbed up by as much as 1,400 points during the day, to close at 84544.31.
Nifty wasn't far behind, inching up over 1% during the day to close at 25790.95.
What is driving this rally? And this is not just the secondary market. The primary market, i.e. IPO subscriptions are also witnessing a stellar surge in investor interest.
The IPOs of Northern Arc Capital and Arkade Developers, which closed yesterday, were oversubscribed 117 times and 113 times, respectively, largely on the back of significant investments made via the QIB and NII categories.
But the question is, what is driving this frenzy, which comes on the heels of the Fed's recent announcement slashing interest rates by a significant 50 basis points?
Experts explain that the most direct impact of the rate cut comes in the form of higher foreign capital inflows into emerging markets like India.
The impending anticipation of this is what is driving the rally witnessed in the stock market today. As per data from NSDL’s FPI monitor, foreign investors infused a net total of Rs 2,341.64 crore in Indian equity markets via stock exchanges, as of September 19th, 2024.
Data shows that September has seen inflows of around Rs 27,862 crores in first half of September. This is around 4 times the flows seen during the entire month of August.
Just within this week (till September 19), FPI inflows have touched Rs 5,419 crores.
Palka Arora Chopra. Director, Master Capital Services Ltd explains that the current upswing in the stock market results from market forecasts of increased foreign inflows into India following the Fed rate decrease.
Riding on the tide of higher foreign inflows is the strengthening of Indian Rupee. Already, the rupee has regained strength from a high of 84.0 to 83.7 over the last week, and this trend may continue in the near term.
Santosh Meena, Head of Research, Swastika Investmart Ltd notes that historically, emerging markets tend to outperform during the onset of a rate-cut cycle in the U.S.
“Indian markets, backed by robust fundamentals, remain resilient despite concerns over valuations.
Large-cap stocks, particularly in the private banking sector, continue to look attractive, fueling the current bullish momentum. This positive trend is expected to persist unless significant negative developments arise on the domestic or global front”, he highlights.
Mr. Pradeep Gupta, Co-founder & Vice-chairman, Anand Rathi Group notes that this rate cut comes with some short-term benefits for the country, which means stronger rupee and potential capital inflows.
"A stronger rupee would make imports cheaper, potentially improving India’s trade balance. However, these advantages may be temporary if the US economy continues to weaken. The Reserve Bank of India (RBI) may follow the Fed’s lead but not immediately. Improved global sentiment could drive a rally in Indian markets, as emerging economies like India become more attractive to investors", notes Gupta.
But note that in the longer term, the direction of the Indian stock market will depend largely on global economic conditions, and particularly the health of the US economy. If the US achieves a “soft landing”, as is targeted by Fed, and avoids a recession, Indian equities may experience gradual growth. However, if the global outlook deteriorates, Indian markets—especially mid and small-cap segments, could come face to face with increased volatility and market downturns.
"When equities hit all time highs, there is a natural tendency of equity component of your asset allocation to breach the prescribed asset allocation. In such a situation, on should reassess the asset allocation and shave off excess percentages from the equity allocation to revert to the mean".
Goel also suggests hedging a portion of your portfolio by buying naked long dated put options on benchmark index like Nifty 50. This way, you'd be able to benefit from a decrease in the prices of underlying assets, without having to own it.
But most importantly, "At these crests, its important to shuffle your portfolio. Remove the crap, low-value stocks that might have made their in your portfolio during bullish phase, and replace with high quality stocks. Shift your assets more toward the large cap stocks/index funds where the volatility would be less or towards sector/market caps, which are less expensive on valuations", Goel continued.
As for traders looking to make the most of the ongoing upward trajectory of the market, Osho Krishan, Senior Analyst, Technical & Derivatives, Angel One, advises "capitalizing on the upward momentum by taking profits, rather than adopting an aggressive stance in the overbought territory".
"From a technical perspective, we have entered a phase where the market is overbought, as indicated by various metrics. Therefore, it is crucial to avoid complacency and instead adopt a practical and realistic approach to the current situation", he continued.
Anirudh Garg- Founder and Fund Manager at Invasset PMS explains that "When markets hit an all-time high, investors need to reassess their strategies to navigate potential risks while still capitalizing on opportunities. However, it’s essential to understand that not every market high signals overvaluation. There’s a key difference between markets reaching record levels and being fundamentally expensive. Identifying this distinction helps avoid premature decisions based solely on market peaks".
"In particular, when mid-cap and small-cap stocks exhibit stretched valuations, investors should shift their focus to high-quality companies. These are firms with robust balance sheets, consistent earnings growth, and strong competitive advantages, often found in sectors linked to steady inflation", says Garg.
Naturally, quality stocks tend to be more resilient in volatile environments, offering stability and better protection against downside risk. Also, don't forget to keep an eye out for the risk-reward ratio, which becomes critical during expensive markets. This involves diversifying portfolios, avoiding overexposure to overheated sectors, and focusing on capital preservation while seeking reasonable returns.
Disclaimer: The content on this website is for informational purposes only and should not be construed as investment advice. We recommend readers consult certified, qualified and registered advisors for professional and personalised financial advice.
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Nifty wasn't far behind, inching up over 1% during the day to close at 25790.95.
What is driving this rally? And this is not just the secondary market. The primary market, i.e. IPO subscriptions are also witnessing a stellar surge in investor interest.
The IPOs of Northern Arc Capital and Arkade Developers, which closed yesterday, were oversubscribed 117 times and 113 times, respectively, largely on the back of significant investments made via the QIB and NII categories.
But the question is, what is driving this frenzy, which comes on the heels of the Fed's recent announcement slashing interest rates by a significant 50 basis points?
Advertisement
The impending anticipation of this is what is driving the rally witnessed in the stock market today. As per data from NSDL’s FPI monitor, foreign investors infused a net total of Rs 2,341.64 crore in Indian equity markets via stock exchanges, as of September 19th, 2024.
Data shows that September has seen inflows of around Rs 27,862 crores in first half of September. This is around 4 times the flows seen during the entire month of August.
Just within this week (till September 19), FPI inflows have touched Rs 5,419 crores.
Palka Arora Chopra. Director, Master Capital Services Ltd explains that the current upswing in the stock market results from market forecasts of increased foreign inflows into India following the Fed rate decrease.
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“This, combined with the fact that US jobless claims are at their lowest since May 2024, have alleviated concerns about the US labor market failing, rather, it is simply slowing down. This is also why the Dow Jones Industrial Averages and S&P 500 index surged to 1.7%, and Asia saw a rise in markets across Korea, Japan, and Hong Kong”, she continued. Riding on the tide of higher foreign inflows is the strengthening of Indian Rupee. Already, the rupee has regained strength from a high of 84.0 to 83.7 over the last week, and this trend may continue in the near term.
Santosh Meena, Head of Research, Swastika Investmart Ltd notes that historically, emerging markets tend to outperform during the onset of a rate-cut cycle in the U.S.
“Indian markets, backed by robust fundamentals, remain resilient despite concerns over valuations.
Large-cap stocks, particularly in the private banking sector, continue to look attractive, fueling the current bullish momentum. This positive trend is expected to persist unless significant negative developments arise on the domestic or global front”, he highlights.
Mr. Pradeep Gupta, Co-founder & Vice-chairman, Anand Rathi Group notes that this rate cut comes with some short-term benefits for the country, which means stronger rupee and potential capital inflows.
Advertisement
"A stronger rupee would make imports cheaper, potentially improving India’s trade balance. However, these advantages may be temporary if the US economy continues to weaken. The Reserve Bank of India (RBI) may follow the Fed’s lead but not immediately. Improved global sentiment could drive a rally in Indian markets, as emerging economies like India become more attractive to investors", notes Gupta.
But note that in the longer term, the direction of the Indian stock market will depend largely on global economic conditions, and particularly the health of the US economy. If the US achieves a “soft landing”, as is targeted by Fed, and avoids a recession, Indian equities may experience gradual growth. However, if the global outlook deteriorates, Indian markets—especially mid and small-cap segments, could come face to face with increased volatility and market downturns.
What should your investment strategy be?
SEBI registered Investment Advisor Gaurav Goel advises having a thorough look at your portfolio whenever the equity markets hit a fresh high. Look, it is practically impossible to time the markets. But, as a smart investor, markets hitting a fresh high is a good time to rebalance your portfolio, so that you can cushion your funds from any significant downturn that will invariably stem from any market downturns thereafter"When equities hit all time highs, there is a natural tendency of equity component of your asset allocation to breach the prescribed asset allocation. In such a situation, on should reassess the asset allocation and shave off excess percentages from the equity allocation to revert to the mean".
Goel also suggests hedging a portion of your portfolio by buying naked long dated put options on benchmark index like Nifty 50. This way, you'd be able to benefit from a decrease in the prices of underlying assets, without having to own it.
Advertisement
But most importantly, "At these crests, its important to shuffle your portfolio. Remove the crap, low-value stocks that might have made their in your portfolio during bullish phase, and replace with high quality stocks. Shift your assets more toward the large cap stocks/index funds where the volatility would be less or towards sector/market caps, which are less expensive on valuations", Goel continued.
As for traders looking to make the most of the ongoing upward trajectory of the market, Osho Krishan, Senior Analyst, Technical & Derivatives, Angel One, advises "capitalizing on the upward momentum by taking profits, rather than adopting an aggressive stance in the overbought territory".
"From a technical perspective, we have entered a phase where the market is overbought, as indicated by various metrics. Therefore, it is crucial to avoid complacency and instead adopt a practical and realistic approach to the current situation", he continued.
Anirudh Garg- Founder and Fund Manager at Invasset PMS explains that "When markets hit an all-time high, investors need to reassess their strategies to navigate potential risks while still capitalizing on opportunities. However, it’s essential to understand that not every market high signals overvaluation. There’s a key difference between markets reaching record levels and being fundamentally expensive. Identifying this distinction helps avoid premature decisions based solely on market peaks".
"In particular, when mid-cap and small-cap stocks exhibit stretched valuations, investors should shift their focus to high-quality companies. These are firms with robust balance sheets, consistent earnings growth, and strong competitive advantages, often found in sectors linked to steady inflation", says Garg.
Advertisement
Naturally, quality stocks tend to be more resilient in volatile environments, offering stability and better protection against downside risk. Also, don't forget to keep an eye out for the risk-reward ratio, which becomes critical during expensive markets. This involves diversifying portfolios, avoiding overexposure to overheated sectors, and focusing on capital preservation while seeking reasonable returns.
Disclaimer: The content on this website is for informational purposes only and should not be construed as investment advice. We recommend readers consult certified, qualified and registered advisors for professional and personalised financial advice.