The Indian stock market witnessed heavy buying in the banking sector this week, as the broader indices inched towards new heights, defying concerns over elevated valuations and higher exchange margin requirements. According to Vinod Nair, Head of Research at Geojit Financial Services, the indices continued their resilient rally, buoyed by weaker-than-expected inflation data from the US and investor expectations of a rate cut from the Fed.
The Indian auto sector also saw a strong week, driven by anticipated high demand and a favourable earnings outlook. Additionally, PSU Banks benefitted from improved asset quality and the government’s focus on fiscal prudence, attracting investors. While large-caps gained traction, mid and small-caps saw profit booking due to valuation gaps.
Looking ahead, Nair warned of a potential correction in PSU banks due to higher valuation risks. However, sectors such as metals, FMCG, and capital goods are anticipated to gain momentum driven by robust construction demand, an order backlog, rural revival prospects, and India’s narrowing trade deficit. This is further boosted by softer commodity prices and government-led manufacturing initiatives.
The positive momentum in the stock market this week was in contrast to the subdued beginning of the week, characterized by concerns over elevated valuations and higher exchange margin requirements. Despite this, the Indian market remained resilient, unlike its Asian peers, and was bolstered by weaker-than-expected inflation data from the US and expectations of a rate cut from the Fed.
Overall, the Indian stock market saw a boost in the banking sector, as well as the auto sector, with PSU banks and large-caps gaining traction. Looking ahead, while a correction in PSU banks seems likely, other sectors such as metals, FMCG, and capital goods are anticipated to gain momentum driven by various factors.
