After a five-month dance with bulls, Dalal Street seems to be taking a pause, as the benchmark Sensex has corrected over 2,000 points from its all-time high in less than a month.
Bullish Run and Recent Correction
The stock market enjoyed a relentless upward trend since March, propelling the 30-stock index to rally nearly 15% and achieve a historic high of 67,619.20 points on July 20. This remarkable rally was fueled by substantial inflows of approximately $19 billion from foreign institutional investors, steady contributions from domestic institutional investors, and consistent investments from retail investors through systematic investment plans.
However, since July 20, the index has experienced a correction of more than 3%, equivalent to over 2,200 points.
Factors Affecting the Market Mood
The euphoria on Dalal Street has been dampened by a combination of factors:
- Crude Oil Price Surge: Global crude oil prices have surged around 13% in the past month, crossing the $80 per barrel mark.
- Rising Bond Yields: The yield on the benchmark 10-year US Treasury note jumped by a significant 43 basis points in the last month.
- Inflation Concerns: Escalating vegetable prices domestically have raised concerns about inflation. July’s consumer price index-based inflation reached a 15-month high of 7.44%, primarily driven by a fivefold increase in tomato prices.
- RBI’s Actions: The Reserve Bank of India (RBI) unexpectedly imposed an incremental cash reserve ratio (CRR) of 10% on banks, aiming to withdraw surplus liquidity from the system resulting from the withdrawal of Rs 2,000 banknotes.
Index Laggards and Market Outlook
The Sensex’s recent correction has been influenced by underperforming major stocks such as Reliance Industries, ITC, Hindustan Unilever, and Bajaj Finance. Reliance Industries, for instance, has corrected around 11% from its recent 52-week high.
Market valuations, after the five-month surge, have approached the historical average, indicating the potential for an intermittent correction. Nevertheless, most money managers, including foreign banks, maintain a positive outlook on India’s domestic prospects.
The reduced risk of a severe recession in the US, which could favor India and support its re-rating, is an encouraging factor according to BofA Securities.
“While market near-term outlook might face challenges from crude spikes, inflation pressures due to erratic rains, and commodities rally driven by potential China stimulus, the impact of these factors might be transient. We suggest seizing opportunities during potential dips,” advised Amish Shah, Head of India Equity Research at BofA Securities.
Sanjay Chawla of Baroda BNP Paribas Mutual Fund highlighted India’s position as a growth oasis among the G20 economies. With low export dependence and a relatively robust domestic market, India’s reasonable valuations and strong growth rates present an attractive case for compelling returns.
In conclusion, despite the current short-term break, Dalal Street bulls are anticipated to return, holding the potential for renewed momentum.
Disclaimer: The information provided here is for informational purposes only and should not be construed as investment advice. Always consult with financial professionals before making investment decisions.