Market Ripe For A September Bounce? | Open Interest
Foreign flows in the few months have moved out of India on the back of slower earnings and high valuations to other Asian countries like China, Taiwan, and South Korea.
After two months of continuous fall, the benchmark Nifty 50 index seems ripe for a September bounce. To set the context, the Nifty 50 has so far gained about 4% significantly underperforming the emerging markets and finding support at 24,400 levels.
Like any market, flows play an important role in Indian markets as well.
The foreign investors have so far sold Rs 2.90 lakh crore in the secondary market year to date, while domestic financial institutions net bought Rs 5.01 lakh crore, thus outpacing the foreign investors comfortably. The domestic outperformance can be attributed to retail monthly SIPs flow increasing to all all-time high to over Rs 28,000 crore in July.
While the net domestic flows cushioned the selling pressure from the foreign investors, it also stepped in to buy stocks in battered sectors at lower valuations.
Meanwhile, foreign flows in the few months have moved out of India on the back of slower earnings and high valuations to other Asian countries like China, Taiwan, and South Korea. A recent Goldman Sachs report India remains among the most underweight markets with Emerging Market funds.
The Indian markets are trading at 20-times FY26 earnings with analysts pricing in earnings growth revival in FY27. In this backdrop, a rebound in markets is likely to be led by the consumption sector.
As the street heads into September, there are a few macro-economic factors to keenly watch after the Q1 GDP of 7.8% that beat street expectations on the back of services and private consumption.
First, starting with the GST council meeting. It is now evident that GST Council will approve the rationalisation of the rates merging with the 12% rate with 5% and 28% with the 18% i.e., moving away from five rates to three rate structure - 5%, 18% and 40%. The move will be seen as big positive for consumption, which has been lagging in the last four quarters.
On The Radar
The GST rate rejig is expected to boost consumption during the forthcoming festive season, helping earnings for the consumer durable, automobiles, and FMCG companies. The change to GST is expected to provide close to Rs 1-1.5 lakh crore in consumption boost in the form of GST revenue let go by the States and Centre.
The other big event will be the US FOMC meeting. Post the Jackson Hole speech by Fed Chair Powell, the investors' expectations are building up to a cut in interest rate when it meets later this month. The street is pegging two rate cuts of 25 bps each by the end of the current calendar year.
The cut in interest rate will help the Indian IT sector the most, which has been hit by the slowdown in discretionary spends and deferrals of large order, given the tightening in the market and tariff uncertainty that has brought challenges to the earnings.
Indian IT companies, which have corrected between 25-30% from their 52-week highs on the back of slower earnings growth, are expected to see a revival in order execution as certainty emerges for many of their clients.
The markets have factored in all the impact of foreign outflows, geopolitical conflicts, and adverse US tariffs. With most uncertainty already factored in by the markets, September is all set for a rebound!
