Sensex snaps 8-week losing run; but can gains last? Experts weigh in

For the week, Sensex and Nifty 50 closed in the green and snapped their eight-week long losing streak.

Sensex rise today: Indian stock market's benchmark indices staged a spectacular turnaround on Friday after yesterday's drubbing in the face of headwinds such as higher crude oil prices, elevated bond yields and foreign investor selloff. 

 

Sensex rallied 1076 points or 1.150 per cent to 72,669 in intraday deals after hitting multi-month lows in previous trade. It settled the day at 72,472, up 879 points or 1.23 per cent. For the week, it gained 0.8 per cent and ended the record eight-week losing streak. Similarly, Nifty 50, too, closed 0.4 per cent higher for the week following a 1.30 per cent rise in the index to 22,520 today.

 

 

Arun Kejriwal, founder at Kejriwal Research and Investment, said that I believe the market's movements reflect frustration with the geopolitical situation, particularly with November 3 (mid-term election) approaching. "Nobody knows what Trump is going to do or what the impact will be after the results."

 

He said that IT stocks are leading today's rally, even though the sector has suffered a negative blow from the H-1B visa restrictions. While these restrictions could make existing H-1B visa holders more valuable, they ultimately curtail the industry's ability to secure new business, Kejriwal said, adding that it is a negative for the sector.

Is rally sustainable?

 

Broader market cues remain challenging, with elevated oil prices, the ongoing conflict in the West Asia and other macroeconomic concerns still in play. While US President Donald Trump said the country will ​not attack Iran before US elections next month, which pulled the oil prices nearly a per cent lower, Brent continued at $103. 

 

"Until yesterday, we were flat for the week. Today, we are up for the week. The dead-cat bounce has broken the eight-week losing streak," Kejriwal noted, but was quick to add that next week, the story could begin all over again and the trend is not sustainable. 

 

Another reason why the sustainability is doubtful because of the headwind from high US bond yields. The US 10-year Treasury yield is around 5.24–5.25 per cent. As long as the yield stays above 5 per cent, FIIs are likely to continue selling, said VK Vijayakumr of Geojit Financial Services. "Therefore, the pullback we are witnessing right now is likely to be temporary."

 

FIIs have sold ₹2.91 trillion worth of stocks, the highest-ever, in the calendar year so far. Against this backdrop, Sensex is down 15 per cent for the year and Nifty 14 per cent. 

 

Valuations matter

The current decline in the market, however, has rendered the valuations lucrative, believe analysts. 

 

Nifty 50 valuations have corrected to around fair/cheap levels: trailing P/E is 19.26x versus a historical median of 20.9x, while P/B is 2.75x versus 3.5x, said DSP Mutual Fund in its September Netra report, making it selectively more positive on large caps.

 

Moreover, Indian equities are now at one of the lowest relative rolling performance vs emerging markets (EMs) --- an ideal place to be more upbeat on India vs the EMs, said the fund house. Hence, it is time to allocate, selectively, to large and high-quality names, it noted.

 

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