Indian equity markets have resumed their upward trajectory, with the Nifty approaching the 26,000 mark and the Sensex surging past key resistance levels. This rally, primarily driven by largecaps, comes after a brief period of profit-booking and is backed by positive Q2 earnings visibility and expectations for Q3.

Market Performance

The current market rally shows a clear disparity between different market segments:

Sector-wise Performance

Several sectors are showing encouraging signs:

• Financials, including NBFCs and large banks
• Asset Management Companies (AMCs)
• Premium consumption
• Infrastructure

FII Activity

Foreign Institutional Investors (FIIs) have reversed their selling trend:

• July to September: Consistent selling
• October: Bought approximately ₹6,500 crore in cash markets

Q2 Results Overview

Q2 results present a mixed picture:

• Nifty 50 companies (20 reported): Median PAT growth of 5.00%
• Midcaps: Fastest growth with median sales growth of 12.00% and median PAT growth of 13.00%

Sector-specific Insights

IT Sector

• Caution advised on largecap IT
• Small and midcap IT companies have created niches
• Largecap service-based IT still needs to recover growth numbers

Defence Sector

• Valuations remain stretched (50-70 times for many mid and PSU stocks)
• Select names like BEL offer better value

New-age Tech Firms

• Companies like Zomato delivering strong numbers
• Current 50-70% growth rates may not sustain
• Valuations may not justify new entries

Expert Opinion

Krishna Appala from Capitalmind PMS notes that the rally appears to be supported by:

• Earnings visibility for Q2
• Expected continuation into Q3
• Reforms in liquidity
• Changes in tax structures
• GST implementation

While the market shows positive momentum, investors should remain cautious of the disparity between largecaps and smaller segments, and carefully consider sector-specific trends and valuations before making investment decisions.

Market expert Ajay Bagga foresees a recovery in Indian equity markets over the next two quarters, with September potentially marking the bottom of earnings downgrades. This outlook comes amid varied consumption patterns and sector-specific challenges in the Indian economy.

Consumption Patterns and Sector Performance

The September quarter results are expected to be moderate for durables and staples sectors. This moderation is attributed to delayed expenditure following the Prime Minister's August address and GST cuts announced on September 22. A notable divergence in consumption patterns has been observed:

FMCG Sector Outlook

Major FMCG companies focusing on urban markets are showing tepid volume growth. Bagga notes that their high valuations are not justified by current results, suggesting potential adjustments in the sector.

Post-GST Consumption Boom

Bagga anticipates a post-GST consumption boom that could benefit several sectors:

• Automobiles
• Auto ancillaries
• Durables

However, he emphasizes the need for further fiscal stimulus in the February budget to boost urban demand.

Telecom Sector Insights

In the telecom sector, Bagga favors market leaders like Bharti. He advises caution on highly indebted players such as Vodafone Idea, citing regulatory and debt risks.

Global Economic Factors

The expert also touched upon the U.S. economic scenario:

• Expectation of U.S. Federal Reserve rate cuts
• Slowing labor markets
• Inflation hovering around 3-3.1%

These global factors could have implications for Indian markets and investor sentiment.

Conclusion

As the Indian equity markets navigate through sector-specific challenges and varying consumption patterns, investors and market participants should keep a close eye on both domestic policy changes and global economic trends. The anticipated recovery over the next two quarters could present opportunities across different sectors, particularly in automobiles, auto ancillaries, and durables.