Markets in September: Sensex, Nifty turn positive, only 1 index in the red; What lies ahead?

After a weak August, Indian indices again turned positive in September. While benchmark Sensex rose 1.5 percent in the last month, broader index Nifty gained 2 percent. In comparison, both indices were down 2.5 percent in the month of August. Before that, the benchmarks surged over 11 percent between March and July.

But it is important to note that there was a vast divergence between the first and the second half of the month. In the first half of the month, the benchmarks hit new highs, with the Nifty breaching the 20,000-mark on the back of robust buying by domestic investors and a successful G20 summit, which has drawn the attention of global investors towards the Indian markets.

However, some consolidation was seen in the markets in the second half of the month as foreign investors turned sellers for the month amid a rise in crude oil prices, a jump in US bond yields, resurfacing inflationary fears and overall poor sentiment in global peers. Furthermore, high valuations and profit booking after hitting new peaks also led to a fall in sentiment in the latter half of the month.

In the last session of September, the 30-share BSE Sensex climbed 320.09 points or 0.49 percent to settle at 65,828.41. Meanwhile, the Nifty advanced 114.75 points or 0.59 percent to end at 19,638.30.

"There are too many challenges for the market in the near term. Brent crude at $94, the dollar index above 105, the 2-yr US bond yield at 5.09 percent and the INR at record lows against the dollar are strong headwinds. To add to these headwinds, now there is the disappointing news of the likely compression of NIMs of HDFC Bank, which might temporarily impact sentiments in Bank Nifty. The straining of relations between India and Canada is unlikely to have any lasting impact on the market. The hectic activity in the mid- and small-caps has pushed valuations in these segments to high levels. The sharp rise in many of these stocks has been driven by hope. It remains to be seen whether this hope will translate into reality. Execution challenges may arise. Investors may adopt a cautious strategy of staying with high-quality large-caps," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

In the broader market, the valuations of reasonably good PSU banks like BoB, Canara Bank, and Indian Bank are even now attractive, he added.

PSU banks, energy, auto, realty and metal sectors emerged as top gainers in September, driving the overall market performance. Meanwhile, mid- and small-cap indices also outperformed, indicating continued investor interest in these segments. The mid-cap and small-cap indices rose 3.6 percent and over 4 percent, respectively.

Sectors

Most sectors were in the green in the month of September. Nifty PSU Bank was the top performer, surging almost 18 percent during the month, followed by Nifty Energy, which jumped over 6 percent. Meanwhile, Nifty Auto and Nifty Realty gained around 3 percent each; and Nifty Metal, Nifty Oil & Gas, Nifty Pharma and Nifty IT added over 2 percent each in Sept. Nifty Bank, Nifty Financial Services, and Nifty Media were also up over 1 percent each in this period.

However, Nifty Media was the only index in the red in September, down over 1 percent.

Stocks

Among stocks, over 75 percent of Nifty50 constituents gave positive returns for the month.

Coal India rose the most, over 28 percent, followed by L&T, up 12 percent, NTPC - 11.5 percent, ONGC - 10 percent, Bajaj Auto - 9.75 percent, Bajaj Finance and PowerGrid - 9 percent each. Meanwhile, Grasim, Bharti Airtel, Apollo Hospitals, Axis Bank, SBI, TCS, HCL Tech, Maruti Suzuki, Kotak Bank, Hindalco and Tata Consumer also gained between 5 and 8.5 percent. Other constituents, Sun Pharma, Adani Ports, Divi's Labs, Bajaj Finserv, Hero Moto, Tata Motors, IndusInd Bank, UPL, Eicher Motors, and Tata Steel, as well, rose over 3 percent each in Sept.

On the other hand, Cipla shed the most, almost 6 percent, followed by Asian Paints - 3 percent, HDFC Bank - 2.8 percent, and Reliance Industries - 2.5 percent

Outlook and Strategy

Vijayakumar

There are mixed cues for the October series, which historically has been a good month for markets. The major negative for the near term will continue to be the sustained FII selling, which touched ₹26,689 crores in the cash market in September. The dollar index rising above 107 and the US 10-year bond yield at a16-year high of 4.68 percent are major headwinds for the market since FIIs are likely to continue selling in response to the rising dollar and US bond yields. But, on the positive side, the bulls will be emboldened to buy on the back of the tailwind of the 5% crash in Brent crude prices. Bullish DIIs and retail investors will lend support to the market. In the near term, these negative and positive factors can be expected to swing the market.

Apurva Sheth, Head of Market Perspective and Research, SAMCO Securities

Nifty is in a consolidation phase after it touched the psychologically important mark of 20,000. Crossing such a milestone creates a euphoric environment which is generally followed by a correction. The 10-year US bond yields have also played spoilsport, which has moved above the previous high of 4.335 percent. The yields are at a 16-year high now, which is why FPIs have withdrawn funds leading to a fall in markets. If interest rates peak out in the next FOMC meeting and bond yields head lower then it could be a big positive for the markets. Thus, we will look forward to the possibility of a peak in bond yields and Nifty once again crossing the 20,000 mark.

Investors can protect their portfolios by diversifying in non-correlated assets. So if you have all your investments into equities whether large, mid, or small-cap, it won’t matter much. If there is a crash in the markets, it will affect all three. But if you have allocations towards gold, silver, currency, and fixed-income securities, then the overall impact on your portfolio will be minimised.

Hemang Kapasi of Sanctum Wealth

The Nifty has clocked a decent return in the year so far. However, there seems to be fatigue in heavyweight sectors like oil & gas and BFSI, and a lack of tailwinds in IT, which is being made up by good performance in low-weight sectors like auto and healthcare. The returns, however, now look front-ended given the superlative profit growth in the last quarter which was led by margin expansion rather than topline growth.

We are entering a volatile phase and current momentum in the market could derail due to a deficit in monsoon which could further impact the demand recovery in the second half of the year and because of multiple state elections being lined up towards the last couple of months in 2023.

Our model portfolio is fairly diversified with the highest weight in financials, followed by industrial and manufacturing, consumer discretionary, and IT. We were very positive on our top two themes in the previous year, and we continue to be positive now as well.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before taking any investment decisions.