September hasn’t been a kind month, at least for a while as far as markets are concerned. Most of the current troubles started surfacing after the default of IL&FS group last September and the uptrends in benchmark indices have been more deceptive as mid-caps and small caps continued to bleed.
September 2019 has begun with a shocker of the GDP number, a hurried response from the government and a global trade war to contend with. The first trading day of the month saw Sensex tanking 2 per cent or 770 points to close at 36,563 and Nifty down 225 points to 10,797.90.
The data, be it GDP, vehicle sales, manufacturing has all dented investor confidence. The measures announced by the government over the last two weeks are also not seen as an immediate economic stimulus that can energize growth. Tuesday’s fall has been across the board, and only two Sensex stocks seen in green were Tech Mahindra and HCL Tech.
“Whatever impact, it has already happened, one more day or two. Outlook for this month should be slightly positive, for we have had three months of consecutive decline if we take derivatives for the last three series. Five consecutive Septembers have also been bad. What we can say is by the end of October we should be through with this kind of news. We should be on our way back to recovery,” said V.K.Sharma, Head, Private Client Group, HDFC Securities said.
The GDP numbers are bad, but what is positive is the ability to provide monetary stimulus with low inflation, said VK Vijayakumar Chief Investment Strategist at Geojit Financial Services. “Indian economy responds to monetary stimulus since there is a lot of pent up demand in the economy. The economy will bounce back in Q3 and Q4 and there can be a v-shaped recovery in FY 2021. Nifty is likely to get support at 10600 levels. Value buying is certain to emerge at those levels. The market is likely to consolidate before it moves up. A sharp recovery in indices is likely to take some time,” he said.
Mergers of public sector banks announced on Friday didn’t go down well with the investors as they foresee troubles in integration and the disruption in lending activities during the process. The Nifty PSU Bank index fell by 4.9 per cent or 121 points to close at 2,354. Bank Nifty with major weightage assigned to private banks also fell by over two per cent on Tuesday. “The economic slowdown has raised fresh market concerns on the asset quality of financial sector,” commented Saion Mukherjee and Neelotpal Sahu of Nomura in an India equity strategy report discussing the growth slowdown.
“Valuations of the broader market have corrected, most stocks have tanked, and it's ambiguous whether the biggest buying opportunities will emerge. We are positive on markets but recommend a stock and sector-specific strategy. Banking, pharmaceuticals, oil marketing companies, and select automobile companies are our biggest buys. After the steep correction, metals are also looking attractive; however, as always, metal stocks will test investor patience,” said Equirus in its India Strategy Report.
While structural issues exist the market reaction is overdone, Equirus said pointing out to the fact that relative valuation of Nifty and small-cap indices are touching post-Lehman and 2013 lows.