D-Street extended its bull run for a third straight week amid concerns about elevated valuations. What awaits us?

Indian stock indices extended their rally for a third straight week amid a significant cut in interest rates by the US Fed and a rally in metals stocks following new stimulus measures from China.

Besides, the Organization for Economic Co-operation and Development (OECD) in its Interim Economic Outlook said that the Indian economy is likely to register faster growth at 6.7% in FY25 as against 6.6% forecast earlier.

S&P Global Ratings has maintained India’s economic growth forecast of 6.8 percent for the current financial year. However, market observers are concerned about its increased valuations.

The Sensex gained 1,028 points or 1.2 per cent to 85,571.85 in the week ended September 27, while the Nifty rose 388 points or 1.5 per cent to 26,178.95.

On a sectoral basis, the BSE Metal index was the best performer with an increase of 7.1 per cent, followed by the BSE Oil & Gas indices (up 5.9 per cent) and the BSE Auto indices (up 4.3 per cent). Meanwhile, the BSE FMCG index fell by 0.2 percent during the week.

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

Meanwhile, ICICI Bank, Larsen & Toubro and Kotak Mahindra Bank lost 2.4%, 2.3% respectively. and 1.7 percent

Market macros

Vinod Nair, chief research officer at Geojit Financial Services, said Indian benchmarks rose 1.7% for the week, marking the third consecutive weekly gain. This upward trend was significantly influenced by last week’s significant reduction in interest rates in the US. The market responded positively to the Fed’s interest rate cut and stable macroeconomic data, which accelerated the inflow of funds from abroad and generated dynamics in domestic markets.

Moreover, the announcement of economic stimulus by China increased investor confidence, which translated into noticeable positive dynamics on global markets, especially in the case of Asian indices.

He added that metals and resources stocks outperformed, while IT and export stocks rallied on expectations of a revival in discretionary spending, highlighted by signals from US IT peers.

Lower commodity prices, including oil, are beneficial for the domestic economy and corporate earnings are expected to improve in the second half of FY25, driven by expected increases in government spending.

The apparent trend is that this rally has been mainly driven by large-cap stocks, which are relatively fairly valued compared to mid-cap and small-cap stocks, which are showing signs of exhaustion.

“The risk to growth is increased valuations. Given incentives and attractive valuations from the likes of China, FIIs are gravitating towards East Asian competitors. Looking ahead, investors will be focused on second-quarter results, expecting improved earnings prospects,” Nair said.

Nice perspective

Market veteran Deepak Jasani, head of retail research at HDFC Securities, says Nifty snapped its six-session losing streak on September 27 after hitting a high of 26,277.35 points. At the close, Nifty fell 0.14 per cent or 37.1 points to 26,178.9.

On the other hand, global equities reached a new record high on September 27 as the latest Chinese stimulus measures to support economic growth and upbeat data from the US economy improved sentiment in financial markets. Optimism related to the easing of central bank policy also helped. Asian markets ended the session mixed after beginning weekend profit-taking.

Expecting some resistance for the large-cap share benchmark in the coming week, he said, “On September 27, Nifty remained in the range of 126 points and formed a small negative candle. Nifty seems to have taken a breather after a series of gains. Nifty may now face resistance from the 26,250-26,475 band on the upside, while 25,849 may offer support in the short term.”

Bank Nifty

Amol Athawale, vice-president, technical research, Kotak Securities, said that the medium-term texture of Bank Nifty is bullish, but due to temporary overbought conditions, we may see swing activity in the near future. “Currently, for traders, 53,500 and 53,100 will be key support zones, while 54,500-54,800 could be profit-booking areas for bulls. However, an uptrend below 53,100 would be sensitive,” Athawale said.